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eobf_D 7/5/06 2:59 PM Page 194

Deflation

The disadvantages are that it often takes a long time to DEPRESSION
reach a group consensus and that group members may have
SEE Business Cycle
to compromise in order to reach a consensus. Many busi-
nesses have created problem-solving teams whose purpose is
to find ways to improve specific work activities.
SEE ALSO Management DEREGULATION
Most societies rely on competitive markets to handle the
BIBLIOGRAPHY allocation of scarce resources to their highest and best
Boone, Louis E., and Kurtz, David L. (2005). Contemporary uses. Yet markets are not without their shortcomings. For
Business (11th ed.). Mason, OH: Thomson/South-Western. this reason, governments sometime institute regulatory
Bounds, Gregory M., and Lamb, Charles W., Jr. (1998). control. In 1887, the first regulatory agency, the Interstate
Business. Cincinnati, OH: South-Western College Publishing. Commerce Commission, was created to regulate monop-
Clancy, Kevin J., and Shulman, Robert S. (1994). Marketing olistic pricing policies of railroads.
Myths That are Killing Business: The Cure for Death Wish When private firms gain monopoly power, usually
Marketing. New York: McGraw-Hill.
because of economies of scale, they are in a position to
French, Wendell L. (2003). Human Resources Management (5th restrict production and raise price with little worry of
ed.). Boston: Houghton Mifflin Co.
competition; these are known as natural monopolies. The
Madura, Jeff (1998). Introduction to Business (3rd ed.). Belmont, government may permit a single producer (e.g., of natural
CA: Thomson/South-Western.
gas or electricity) to exist in order to gain lower produc-
Nickels, William G., McHugh, James M., and McHugh, Susan
tion costs but simultaneously empower a regulatory
M. (2004). Understanding Business (7th ed.). Boston: agency to set the firm’s prices.
McGraw-Hill.
A second reason for regulation stems from the fact
Pride, William M., Hughes, Robert J., and Kapoor, Jack R.
(1999). Business (6th ed.). New York: Houghton Mifflin. that society declares certain activities illegal. Prostitution,
gambling, and certain drugs are either not permitted or
allowed only under certain conditions. Through a licens-
Marcy Satterwhite ing system, government agencies control who enters such
industries, their prices, and their methods of operation.
Another reason for government regulation arises
because society establishes standards for particular profes-
DEFLATION sions, such as medicine, law, accounting, and real estate.
SEE Business Cycle The government guarantees compliance with these stan-
dards by imposing tests and other requirements. Those
failing to meet these standards are not permitted to engage
in that business. Hundreds of agencies administer tests
DELEGATION and police the professions, all done ostensibly in the inter-
SEE Mangement: Authority and Responsibility est of protecting the consumer. Interestingly, license hold-
ers often push for even higher licensing requirements,
often grandfathering in all current license holders, because
higher salaries are possible when the number of competi-
DEMAND tors is restricted.
Many government regulations are designed to protect
SEE Supply and Demand
people from the negative consequences (i.e., externalities)
of buyers and sellers who have little incentive to look out
for the welfare of third parties. For example, slaughter-
DEMOGRAPHICS houses may have the freedom to kill animals for sale to
their customers in grocery stores without taking into
SEE Market Segmentation account obnoxious odors or sounds emanating from the
slaughterhouse. Neighborhood residents, however, incur
externality costs. Through agencies such as the Environ-
mental Protection Agency (EPA), the government con-
DEPARTMENTALIZATION trols what slaughterhouses can and cannot do in order to
SEE Organizational Structure lessen the negative effects on the population.

194 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION