An industry that has been heavily regulated for many years is the dairy industry. The 1937 Agricultural Adjustment Act (AAA) provided for federal control over the marketing of fluid milk (as opposed to milk used in the manufacture of cheese). Today, the AAA still allows the producers of fluid milk to the public to force marketing controls on dairies and bottlers. The federal government controls more than 60 percent of today’s milk markets, and states control most of the rest. The regulation of milk prices was justified by the 1962 Federal Milk Order Study Committee as “promoting orderly marketing conditions for farmers in the production of fluid milk” by “equalizing the market power of buyers and sellers to obtain reasonable competition but not local monopoly resulting in undue price enhancement.” The regulation of milk prices today has one continuing effect: The market price of milk currently exceeds what it would have been in the absence of regulation.

Which theory of regulatory behavior do you think describes what has happened in the regulated dairy industry?