Some positive impacts of deregulation on consumers are increased competition, tax reduction, reduced price, and increased consumer savings, while some negative impacts include loss of jobs, compromise on product quality standards (which doesn’t favor consumers), and the negative effect on consumers in rural areas. Deregulation lowers barriers to entry into industries, which assists with improving innovation, entrepreneurship, competition, and efficiency; this leads to lower prices for customers and improved quality.
Deregulation: Positive Impact on Consumers
1. Increased Competition on Internet Access
- Deregulation frequently reduces consumer prices by enhancing competition and productivity.
- An example is the case of internet service providers (ISP), both for wireless smartphone service and home Internet service over cables, telephone lines, fiber optics, and satellites.
- Before 2016, ISPs were permitted to use and share customer personal data, such as Internet browsing history, unless the consumer “opted out” of data sharing. With so many consumers staying with the default sharing option, ISPs could earn revenue from subscriber fees, tracked by the industry’s consumer price index (CPI), and using or sharing customer data.
- Equivalently, the receipt of customer data allowed ISPs to earn the same profits with a lower subscriber fee. In effect, consumers paid for part of their subscription in money and another part by providing personal data.
- In 2016 the FCC proposed and finalized a broadband privacy rule requiring ISPs to default consumers to paying in money only, thus prohibiting the opt-out system and instead requiring the opt-in system. This rule, which was likely anticipated well before 2016 as the FCC was moving ISPs under the stricter “Title II” regulation, was to go into effect on January 3, 2017.
- In 2017, Congress passed, and President Trump signed a resolution of disapproval under the Congressional Review Act to overturn the 2016 FCC rule and prevent future Administrations from adopting similar rules.
- The 2017 deregulatory action assured market participants that the ISP market would proceed with low subscriber fees. By overturning the 2016 rule, the 2017 action restored the FCC’s pre-2016 regulatory approach to protecting customer privacy.
- Consumers with privacy concerns may opt-out and request that their ISPs not share their data.
- Overturning the FCC’s opt-in rule resulted in lower prices for wired and wireless Internet service, as shown by the CPIs in the below figure.
- Wireless service prices fell simultaneously, that Congress was considering the resolution of disapproval and wired Internet prices fell a couple of months later.
- Both these declines are about $40 per subscriber over the life of the subscription, which is similar to independent estimates of the per-subscriber cost of obtaining personal data consent from retail customers that are the basis for our quantitative analysis.
2. Consumer Savings on Healthcare
- Deregulation is also said to be reducing prices for healthcare.
- Prescription drug prices had outpaced general inflation for decades, but they have fallen more than 11 percent below the previous trend of May 2019 and below general inflation in the past two years.
- In 2018, prescription drug prices even declined in nominal terms over the calendar year for the first time since 1972.
- This results from the Trump Administration’s efforts at the FDA, such as its 2017 Drug Competition Action Plan and 2018 Strategic Policy Roadmap, to enhance choice and price competition in the biopharmaceutical markets.
- Under these policies, the FDA has approved a record number of generic and new brand-name drugs to compete against existing drugs.
- It is estimated that these actions will save consumers almost 10% on retail prescription drugs, which results in an increase of $32 billion per year in the purchasing power of the incomes of Americans.
- The Trump Administration has also taken deregulatory actions in other healthcare markets, such as insurance.
- The four actions that the administration took, which removed restrictions and alleviated some of the costs of Federal policies introduced during the years 2010–16, are by themselves expected to increase average real incomes by about 0.5%, or an average of about $700 per household per year.
3. Tax Reduction
- Deregulation is said to benefit the economy as taxpayers no longer have to pay for the expenses of operating regulatory agencies.
- This is achieved by generally lowering barriers to entry into industries, which assists with improving innovation, entrepreneurship, competition, and efficiency; this leads to lower prices for customers and improved quality.
- This means that consumers have more discretionary income, and therefore more money to spend on other items.
- It also helps to increase choices and lower prices for consumers.
- Furthermore, it allows market forces to control the industry, thereby making the customer a king in such a market economy.
Deregulation: Negative Impact on Consumers
1. Loss of Jobs
- Deregulation started with the Railroad Revitalization and Regulatory Reform Act of 1976. That made it easier for the railroads to change rates, merge and stop running unprofitable routes.
- Four years later, Congress passed the Staggers Rail Act of 1980, which further eased regulations and made railroad rates more flexible.
- Rail companies dropped the businesses that were losing money and increased the profitable ones, thereby leading to abandoned miles of tracks.
- Later, interstate highways got crowded, and gas prices rose, railroads started hauling truck trailers.
- But the passenger service and short routes the railroad companies abandoned were the ones that needed more workers.
- Unions lost power and had to agree to drop the job of brakemen — about a third of workers on trains.
- Similarly, after Congress passed the Airline Deregulation Act of 1978, airlines started new routes, dropped unprofitable ones, and slashed fares.
- Within a few years, fuel prices rose, and many airlines began to lose money.
- Mergers and bankruptcies hurt the power of labor unions, and they had to give concessions on jobs and wages, paving the way for job losses.
2. Impact on Consumers in Rural Areas
- People in rural areas are said to sometimes become unforeseen victims of deregulation.
- The Railroad Revitalization and Regulatory Reform Act of 1976 and the Staggers Rail Act of 1980 made it easier for railroads to abandon passenger service, which had been a financial drain.
- Deregulation in the rail industry meant that railroads no longer had to offer passenger service in addition to freight, thereby leaving rural people without service.
- When the United States began the massive shift to cell phones instead of landlines after telephone deregulation, people in areas with poor cell phone coverage were out of luck.
- Those were also the same areas where deregulated cable TV companies will not want to invest in, leading to no affordable broadband Internet.
3. Compromise on Quality Standards
- According to Econmentor, “too much deregulation could lead to compromising quality standards, financial uncertainty, and the creation of monopolies.”
- Economic Help opined that it could be difficult to create effective competition in an industry, which is a natural monopoly – high barriers to entry.
- Deregulation in such an industry may create a private firm with monopoly power.
- Private firms have an incentive to cut costs and provide a lower quality of service.
- Deregulation is said to lead to cause a compromise of public services with a poorer quality of provision.
- Deregulation in train services led to franchising, where companies were awarded contracts for a particular time period.
- There is competition in the bidding process, but no guarantee firms will live up to their promises.