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What Is a Regulated Market?

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  • Written By: Ray Hawk
  • Edited By: E. E. Hubbard
  • Last Modified Date: 09 December 2016
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A regulated market is a particular industry, and sometimes a national environment in general, where the buying and selling of goods and services is only permitted with some level of government oversight, involvement, or manipulation. Extreme examples of regulated market environments are those where whole industries are nationalized by a government, such as utilities, telecommunications, and military equipment production. As well, when these industries are privatized, such as during the period of reforms in former Soviet bloc nations after the dissolution of the Soviet Union in the late 1980s to 1991, the markets are still often under relatively tight control by the government behind the scenes.

One contemporary example of a regulated market on an international scale is that of the pharmaceutical industry in the BRIC countries, composed of Brazil, Russia, India, and China. The Brazilian Health Ministry establishes price controls on drugs for local consumption and protects Brazilian producers of generic versions of drugs to the point where foreign companies have largely failed at entering the pharmaceutical market there. As of 2008, local Brazilian companies control 80% of the generic drugs market in Brazil through this regulation.

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Russian protectionist measures for local pharmaceutical production include a state run drug program of price controls, known as Dopolnitelnoe Lekarstvennoe Obespechenie (DLO), translated as the Provision of Supplemental Medicines. Like many regulated markets, India's pharmaceutical environment can be difficult for large multinational corporations to enter because intellectual property and patent protection for drugs is seemingly lax. This is often used as a strategy by regulated market governments to keep out foreign producers. China goes a step further and attempts to keep out foreign competitors by fragmenting its markets, where companies are allowed to focus their distribution on only one particular province. The Chinese government also tends to be slow to approve many drugs that are otherwise widely distributed elsewhere.

While some nations are deregulating markets to improve the profitability of private companies and bolster their economies, the practice is never universal. A good example of this is airlines that, in recent years, have been deregulated in the United States and Australia. They are still strongly regulated in the UK and South American countries of Columbia, Ecuador, and Venezuela.

UK airline ticket prices as of 2005 have been controlled by the national Civil Aviation Authority (CAA), though it underwent some deregulation during 1979 when Margaret Thatcher became Prime Minister. The United States underwent more thorough deregulation during 1979 as well, eliminating price controls, route selection for airline hubs, and so on. The U.S. airline industry is still partially regulated, however, with the Transportation Security Administration (TSA) exercising tight control over security and some aspects of commerce.

Most large industries have a regulated market element to them in some regard, but the level of control varies widely. The U.S. healthcare industry is unique among industrialized nations in being largely unregulated, though all medical professionals have to be licensed in a government-approved manner. Oversight laws regarding long-term care facilities and more are widespread.

The overt purpose of most regulated market activity, such as that performed by the Food and Drug Administration (FDA) to control drug distribution in the U.S., is to protect its citizens from harm and deprivation. Controlled market practices, however, are a fundamental part of any mature, mixed economy that promotes free market ideals. As a subtle method of trade protectionism, a regulated market can keep out foreign competitors and bolster the success of local economies.

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