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80 Calif. L. Rev. 13 (1992)
Partial-Industry Regulation: A Monopsony Standard for Consumer Protection

handle is hein.journals/calr80 and id is 29 raw text is: Partial-Industry Regulation: A Monopsony Standard for Consumer Protection Ian Ayrest and John Braithwaitet Regulations usually apply to all members of an industry. Professors Ayres and Braithwaite propose that in some situations 'partial industry regulation is superior to all-or-nothing regulatory policies. Partial-industry regulation governs only a part of an industry, leaving other parts either unregulated or disparately regulated. Regulating only an individual firm (or subset offirms) can engender a system of checks and balances in which the regulated and unregulated portions of the market each curb the excesses of the alternative form of market governance. Partial-industry regulation can thus promote efficiency by restraining monopoly power without giving rise to the evils of either captured or benighted regulation. The authors' theories ofpartial-industry intervention gain support from an analysis of monopsonist behavior. Governments interested in promoting consumer welfare should often emulate what a monopsonist consumer would do. One way to reconceive of the regulator's decision whether to subsidize fringe competition is to ask if a hypothetical downstream monop- sonist would subsidize upstream entry to 'second-source the product. A monopsony standard provides not only a powerful tool for analyzing how government might intervene to protect consumers, but also a limiting prin- ciple for analyzing when intervention is appropriate. INTRODUCTION Federal and state regulation of the United States economy often dis- plays an all-or-nothing character: regulations govern either all members of an industry or none. A host of federal agencies pervasively regulate the conduct of entire industries. For example, the Securities and Exchange Commission regulates the securities industry, the Food and t Professor of Law, Stanford Law School; Research Fellow, American Bar Foundation. B.A. 1981, J.D. 1986, Yale University; Ph.D. 1988, Massachusetts Institute of Technology. t Professorial Fellow, Australian National University. B.A. 1972, Ph.D. 1977, Queensland University. We would like to thank Ken Abbott, Geoffrey Brennan, John Clifford, John Donohue, Meyer Freed, Barbara Glenn, Bob Goodin, Peter Grabosky, Fred Gruen, David Haddocik, Peter Siegelman, and participants at a Law and Society Association presentation for their comments. Research support of the American Bar Foundation is gratefully acknowledged.