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Regulatory capture occurs when a regulator designed to protect the public interest becomes a lobbyist for the firms that are meant to be enforcing those regulations.

Regulatory capture is a type of failure on the part of the government. A regulator has been established to oversee initiatives that are in the public interest. However, when a regulator considers political and corporate considerations instead of the public interest, society suffers a net loss. It inevitably leads to the formation of monopolies, which impose exorbitant prices for limited quality and quantity.

It is a circumstance in which a company that is expected to obey regulations creates those rules. In this example, the firm makes restrictions in its own self-interest, worsening the situation for the general good.