Regulatory Capture
Regulatory capture occurs when firms manipulate regulators through lobbying, revolving doors, or information asymmetries, causing regulation to favour the regulated firms over consumers.
Real World
Ofwat, the UK water regulator, has been accused of regulatory capture after allowing Thames Water to accumulate £14 billion in debt while paying out billions in dividends to shareholders under its oversight.
Exam Focus
Use regulatory capture as a counter-argument when evaluating whether regulation successfully corrects market failure.
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