Question

3. One of the problems with partial deregulation is that relaxing barriers to entry can allow ______________, which lets entering firms provide only the most profitable service at a lower cost, increasing industry costs and leaving the incumbent regulated firm to supply the less profitable service.

Answer 1

The given blank will be filled by the words " increased competition with lower investment and slower growth"

One of the problems with partial deregulation is that relaxing barriers to entry can allow increased competition with lower Investment and slower growth, which lets entering firms provide only the most profitable service at a lower cost, increasing industry costs and leaving the incumbent regulated firm to supply the less profitable service.

When the barriers to entry are relaxed, entry becomes easy. Competition increases. Existing firms tend to supply less profitable services whereas new entrant gets to supply the most profitable services.