Deregulation is when there is a decrease in the barriers of entry to certain industries. This is done by cutting red tape i.e. reducing the amount of bureaucratic processes. This will enable more firms to enter and compete in that specific industry. A reduction in red tape and government intervention will also lead in increase productivity as they do not have to worry too much about the restrictions by the government.

In addition, the government can also remove regulations such as health and safety regulations, environmental regulations, and employment protection.

More companies will be able to start up in the industry under consideration and this will increase competitiveness. When there is an increase in competitiveness, efficiency will be increased, quality will be increase, price will be decreased, and possibly there will be technological improvements as well.

For example, the aviation industry in Europe has gone through a process of deregulation and this has led to the proliferation of many private airlines, including budget airlines (such as Easyjet, Ryanair, Monarch, BMI, Thomas Cook, FlyTui). This has increased the level of competitiveness in this industry and thus, reducing the cost (or improving the services) for consumers.

Evaluation 1 There is an increase in the external cost. For example, as there are so many different airlines, people are flying more often, more planes are using the airspace, and this has increased the amount of pollution caused by airplanes.

Evaluation 2 Although there are less regulatory restrictions, there might still be other restrictions that stops private firms from entering the industry such as high costs, inability to obtain certain factors of production (eg. Lack of capital), lack of knowledge / know-how.

Certain evaluation points from Privatisation (above) could also be used to evaluate Deregulation.