Final answer:
The deregulation of the rail industry arose from overregulation, with the intent to reduce government restrictions and alleviate the effects of regulatory capture, aiming to increase competition and market efficiency.
Step-by-step explanation:
The need for deregulation of the rail industry was primarily due to overregulation. In the late 1970s and continuing into the 1990s, advancements in production technologies and the belief that markets could effectively provide services led to a significant wave of deregulation. This wave of deregulation served to eliminate or reduce government restrictions on the entry of firms, the prices they could charge, and the quantities they could produce across various industries such as telecommunications, airlines, trucking, banking, and electricity.
Policymakers recognized that the existing price regulation was not yielding the desired results, contributing to the movement to remove government controls over prices and quantities produced in several industries. Moreover, there was an issue of regulatory capture, where the regulated firms significantly influenced the regulations set, often resulting in reduced output, higher prices, and limited competition to the detriment of consumers. Hence, deregulation was supported as a measure to foster competition and prevent regulatory capture, ensuring a more consumer-friendly and efficient market.