Regulatory Capture:

  • Prioritizes special interests over the public's general interest
  • Results in a net loss for society
  • Common mechanisms include limited market entry and price protection
  • Influence is exerted through money, exposure, and revolving doors

Examples of Regulatory Capture:

  • Tropos Networks faced opposition from Verizon and Comcast, leading to the demise of their city-wide Wi-Fi project
  • The Telecommunications Act of 1996 resulted in increased market concentration and decreased venture capital investment in telecom equipment
  • Epic Systems benefited from government regulations that stifled competition while incentivizing doctors to purchase their medical EHR software
  • Antigen test manufacturers like Abbott and Quidel received favorable treatment from regulators, resulting in inflated prices compared to similar products available in Europe

Challenges in Addressing Regulatory Capture:

  • Overcoming regulatory capture requires transparency and awareness among the public about lobbying efforts and financial contributions made by special interest groups
  • Revolving doors between industry insiders and government positions contribute to regulatory capture, making self-regulation by lawmakers necessary

Impact on Democracy and Capitalism:

  • Gives capitalism a bad name as incumbents manipulate laws at the expense of competition and innovation
  • U.S. federal government has become the largest consumer and distributor of capital due to extensive market intervention
  • Regulatory capture poses a risk to both democracy and capitalism by impeding economic progress over time

Potential Solutions:

  • Massive transparency platforms like OpenSecrets can expose financial contributions and lobbying activities related to regulatory capture
  • Reevaluating the revolving door phenomenon can help mitigate regulatory capture by limiting movement between industry insiders and government positions
  • Learning from other countries' experiences, such as implementing the UK's loser pays system or adopting Germany's approach to rapid antigen tests, may offer insights into effectively addressing regulatory capture