Policy Instruments For Regulation:

Regulation can take many forms ranging from general guidelines to total ban on an activity; and can be on use of inputs and technology, marketing operations, financing and pricing. In many cases regulation is not sensitive to changing market conditions. In pricing of product, however, the nature of regulation is quite important. As we observed earlier, monopoly retains the potential to exercise its market power and charge higher prices. Governments have devised means of controlling monopoly prices over the years. There are four approaches to regulating the overall price level in an economy, viz., price cap regulation, revenue cap regulation, rate of return (or cost of service) regulation, and bench-marking (or yardstick).