It has been said that economic regulation insulates firms from competition, and this insulation from competition leads to firms being inefficient. Does history bear this claim out? Explain.

Economic regulations are implemented and set up by governments and they are aimed at competition reduction by the application and implementation of barriers to entry and the encouragement of exit forcing the weaker entities and firms to quit the market. Although the regulations by the government tend to be of great help in situations with the presence of market failure, the interests of the public are very critical issues that need to be observed and responded to accordingly.

Regulations and restrictions tend to lessen competition almost globally leading to a reduction in the efficiency of the market, a claim that history bears. There exist several pieces of evidence that are empirical and that suggest that economic policies that are driven by efficiency and competition end up yielding better employment, overall growth, productivity, and economic development. The regulations by the government are mainly aimed at the private sector which is considered with no doubt, to be more efficient in many occasions, even though it has been observed that in the absence of enough competition amongst the private sector, monopolies may develop and invade the market causing inflation of prices and overcharging of consumers. Thus, the government acts as a watchdog observing and putting up measures and policies to regulate the private sector to avoid exploitation of the market.