Aregulated market (RM) orcoordinated market is an idealized system where the government or other organizations oversee the market, control the forces ofsupply and demand, and to some extent regulate the market actions. This can include tasks such as determining who is allowed to enter the market and what prices may be charged.[1] The majority offinancial markets such asstock exchanges are regulated, whereasover-the-counter markets are usually not at all or only moderately regulated.[2]
A variety of forms of regulations exist in a regulated market. These include controls,oversights,anti-discrimination,environmental protection,taxation, andlabor laws.[1]
In a regulated market, the regulator may legislate regulations that privilegespecial interests, known asregulatory capture.[1]
One of the reasons for regulation can be the importance of the regulated activity – meaning the harm suffered should the industry fail would be so fatal thatregulators (governments,legislators) cannot afford the risk. This includes fields likebanking orfinancial services. Secondly, it is common for some markets to be regulated under the claim that they arenatural monopolies, or that amonopoly would very likely appear should there be no regulation. It is crucial to prevent misuse ofmonopoly power, as this can lead to delivery of poor services with very high prices. This includes for example thetelecommunications,water,gas, orelectricity supply.[1][2] Often, regulated markets are established during the partialprivatisation of government controlledutility assets.
Regulation is subject to changes over time, due to bothtechnological advances as well as the change in attitude towards regulation in general. An example for industries that are no longer regulated is therail service orairlines in the US. On the other hand, there are also industries that did not need regulation in the past, but are in need of it now. This includes for example thereal estate market.
Another category are the markets that encountered major changes in regulatory approaches due to variouscrises. A prime example arestock exchanges followingstock market crashes.[2]
The practice of regulating markets dates back centuries when ancient societies relied on standardised weights and measurements and practised punishment for theft and fraud. For the most part, market regulations have been imposed by the central governments and to a lesser extent by interest groups. One notable example of such interest groups ismedieval guilds. They were often eithercraft guilds ormerchant guilds, and controlled the practise of their profession in their particular area. Guilds defined requirements for practising their profession, which usually meant that only guild members could practise their profession or sell their goods within their city. Since the beginning of the 20th century,labour groups at times have had regulatory roles in some markets.
Regulation is considered a polarising issue. Those in favour of regulating usually see it as beneficial to the wider society, for example regulations targetingecological,racial, orreligion related issues. Those against regulation see it as a tool forlobbying or as a source for creatingunfair competition. Some advocates offree market generally see any regulation except for the most essential ones as costly and inefficient.[3]
