Final answer:
Regulatory capture occurs when regulators become controlled or influenced by the industries they are supposed to regulate, which can lead to biased decision-making in favor of the industry rather than the consumers. This reduces the effectiveness and persuasiveness of regulation.
Step-by-step explanation:
The capture theory of regulation is the idea that regulators can become heavily influenced or controlled by the industries they are supposed to regulate. This leads to a situation where the well-being of the regulatory agency itself takes precedence over the well-being of the consumers.
Regulatory capture reduces the persuasiveness of the case for regulating industries for the benefit of consumers because when regulators are captured, their decisions and actions may be biased in favor of the regulated industries. This can result in lax regulations, limited competition, and higher prices for consumers.
For example, in the airline industry, regulatory capture occurred when the industry itself had significant influence over the regulatory board, decision-making process, and even job opportunities for board members. This compromised the effectiveness of regulation in ensuring fair competition and consumer protection.