Document Type

Working Paper

Publication Date

10-2-2015

SSRN Discipline

Economics Research Network; Legal Scholarship Network; PSN Subject Matter eJournals; Public Choice & Political Economy eJournals; Entrepreneurship Research & Policy Network; Law School Research Papers - Legal Studies; Public Economics eJournals; ERN Subject Matter eJournals; Financial Economics Network; Political Science Network; Political Economy - Development eJournals

Abstract

Free market entry is vital in preventing concentration of market power and eliminating large deadweight losses Yet in recent years studies show that newcomers are less successful than existing firms that have diversifies their products in the market What might explain this phenomenonThis Article unveils a regulatory catch 22 It reveals that although a regulation may be efficient in correcting a certain market failure its distributional effects may create another It exposes the degree to which "economies of experience" in regulation create significant disadvantages to newcomers and provide substantial advantages to oldtimers Being wellversed in their marketplace oldtimers possess knowledge familiarity and influence over the rulemaking process New or "green" entities entering regulated market or dealing with a new rule face proportionally larger costs to obtain regulatory insight Consequently an anomaly exists when government choice may de facto hamper innovation and survival of newcomers the same goals it seeks to promoteTo remedy this inconsistency the Article suggests ways to offset these distributional asymmetries through the use of information cooperatives regulatory sandboxes and compensatory mechanisms These solutions offer policymakers greater regulatory efficiency without resorting to deregulation

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