IDEAS home Printed from
   My bibliography  Save this paper

Regulation and the New Economy



The fundamental theorem of welfare economics asserts that under conditions of perfect competition Pareto efficiency will obtain. This has provided the conceptual basis for the market failure approach to regulation, which focuses on failure to satisfy the conditions for perfect competition as potentially justifying government intervention in markets. The approach is evaluated in the context of a number of key characteristics of the industries of the New Economy. Three areas of regulatory focus are examined: policy approaches relating to competition, intellectual property, and information privacy. It is apparent that the applicability of the market failure approach is open to question, particularly in regard to competition policy. The exploitation by dominant market players of what may be termed "natural" barriers to entry resulting from some of the characteristic features of the New Economy (scale and scope economies, network effects and consumer lock-in) should be judged in the light of Schumpeterian competition rather than that of neoclassical perfect competition. The difficulty facing regulatory authorities is how to differentiate between situations requiring intervention and those that do not. The discussion of intellectual property highlights the fact that, in general, government intervention is not necessarily the only or even the best solution to instances of market failure. Finally, the case of information privacy illustrates how the spillover effects of regulatory actions in one jurisdiction can impact on other jurisdictions and necessitate coordination in a globalised economy. The need for countries to cooperate and coordinate their policies is perhaps the key conclusion of the analysis.

Suggested Citation

  • Lee, Boon-Chye, 2002. "Regulation and the New Economy," Economics Working Papers wp02-18, School of Economics, University of Wollongong, NSW, Australia.
  • Handle: RePEc:uow:depec1:wp02-18

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Richard A. Posner, 1978. "The Right to Privacy," University of Chicago - George G. Stigler Center for Study of Economy and State 2, Chicago - Center for Study of Economy and State.
    2. Nancy Gallini & Suzanne Scotchmer, 2002. "Intellectual Property: When Is It the Best Incentive System?," NBER Chapters,in: Innovation Policy and the Economy, Volume 2, pages 51-78 National Bureau of Economic Research, Inc.
    3. Kaul, Inge & Grunberg, Isabelle & Stern, Marc (ed.), 1999. "Global Public Goods: International Cooperation in the 21st Century," OUP Catalogue, Oxford University Press, number 9780195130522.
    4. Elkin-Koren, Niva & Salzberger, Eli M., 1999. "Law and economics in cyberspace," International Review of Law and Economics, Elsevier, vol. 19(4), pages 553-581, December.
    5. Andrew Graham, 2001. "The Assessment: Economics of the Internet," Oxford Review of Economic Policy, Oxford University Press, vol. 17(2), pages 145-158, Summer.
    6. Richard A. Posner, 1978. "Privacy, Secrecy, and Reputation," University of Chicago - George G. Stigler Center for Study of Economy and State 4, Chicago - Center for Study of Economy and State.
    7. Adam B. Jaffe & Josh Lerner & Scott Stern, 2002. "Innovation Policy and the Economy, Volume 2," NBER Books, National Bureau of Economic Research, Inc, number jaff02-1.
    8. Andrew Dawson, 1998. "The Intellectual Commons: A Rationale for Regulation," Prometheus, Taylor & Francis Journals, vol. 16(3), pages 275-289.
    Full references (including those not matched with items on IDEAS)

    More about this item


    New Economy; regulation; government intervention;

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:uow:depec1:wp02-18. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Siminski). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.