Since the era of post war Britain, the Government’s position on how it approaches regulation has been fickle and has gone through several stages and iterations. However, the core underlying theory upon which its regulation policies are based is agreed by many neo-classical economists.

Following the Structure-conduct-performance (SCP) theory. It suggests that the “perfect competition market structure has the most favourable efficiency” and “there is an implicit assumption that competition is good and monopoly is bad” (Lipczynski et al., 2017, p.710-711). The case for regulation against monopoly is on the grounds of allocative and productive efficiency’s. Under a monopoly a firm will operate at the price taking level, MC=MR at this profit maximising level the firm will not operate at the socially optimal level, a level at which the consumer benefits. “The deadweight loss is a waste in social surplus, by increasing the level of competition in the industry it is possible to increase quantity and reduce the loss” (Begg, 2014, p. 186). Under a monopoly there may also be productive inefficiency’s if the firm operating is without competition. The lack of pressure can be attribute to a firm failing to make the most of its factor of inputs and may fail to employ the most cost-effective methods.

Both consumer and producer surplus are low under a monopoly as they have market dominance and are able to set the price due to the lack of competition consequently they have a significant deadweight loss to the consumer. This is further backed up by Lipczynski when he says.

“The existence of a deadweight loss is a corollary of the monopolist preference to produce at an output level at which price exceeds marginal cost (allocative inefficiency). The size is also increased if the deadweight loss is increased if the monopolist is also inefficient in production.” (Lipczynski et al., 2017, p.712).

It is for these fundamentals that governments feel the need to intervene in the market, to correct the market failure caused by the abuse of market power of monopolies, to a level which the consumer benefits. The governments ideal aim is a situation where the social marginal cost = social marginal benefit in the long run void of market dominance, asymmetric information, price discrimination, high prices and with choice.

A natural monopoly however is one where the best outcome for the consumer is a monopoly due to their decreasing long run marginal and average costs over the whole range of the market with increasing output. When starting to look at this market structure you have a situation that any reform by the government to increase completion would lead to a “wasteful duplication of infrastructure and delivery systems” (Lipczynski et al., 2017, p.713), and wouldn’t benefit consumers. Therefore, governments regulate these markets differently they use a form of conduct regulation that creates a “synthesised regulator by drawing comparisons between utilities and forcing efficiencies on them” (FT, 2017) a somewhat quasi-competitive solution where there is an allocative efficiency gain.

This type of regulation can be seen though the UK in industries where “the cost of the infrastructure means that each utility’s customer base is all but determined by geography” (FT, 2017), such as water, gas and electricity. The monopoly is defined by the geographical area and consumers have no other choice in where they get the utility from for example, Yorkshire water which services the Yorkshire area as well as parts of Lincolnshire and parts of Derbyshire. It was believed that left to the free market the water firms could charge above the marginal social benefit level forcing consumers to buy water at an inflated price as homes will not go without. Therefore, the government stepped in assuming control of the industry.

“It is difficult, if not impossible to combine the citizens’ rights and interests and the private enterprise’s interests, because the private enterprise aims at its natural and justified objective, the biggest possible profit.” (Juuti, 2007, p.241)

The era of regulation, the 1945 general election proved a pivotal tipping point for regulation, the country didn’t want to return to a pre-war depression and so chose a Labour party that was a ‘Socialist Party, and proud of it’ and “would take control of the economy and in particular o