Regulation and Market Behaviour: Economic Insights into Legal Frameworks

Abstract

The interplay between regulation and market behaviour constitutes one of the most dynamic intersections between economics and law. Legal frameworks not only structure market operations but also influence individual and institutional decision-making. Economic theories, particularly those of welfare economics and behavioral economics, provide critical insights into how regulation can correct market failures, promote efficiency, and ensure equitable outcomes. This paper explores the economic underpinnings of regulatory design, focusing on how markets respond to legal interventions. It analyses traditional economic approaches such as the Coase theorem, public choice theory, and cost-benefit analysis while integrating behavioral insights that acknowledge the bounded rationality of market participants. Through a multidisciplinary lens, the study investigates the role of regulation in shaping competition, consumer protection, and innovation in both developed and emerging economies. The paper also examines contemporary challenges—technological disruption, regulatory capture, and data-driven governance—calling for a more adaptive and evidence-based legal order. Ultimately, it argues for a balanced regulatory framework that harmonizes economic efficiency with social justice, guided by empirical insights and behavioral realities.