Economic Analysis of Business’s Violations(The Subject of Chapter Eight of the Guild System Act)

The eighth chapter of the Guild System Act (violations and penalties), plays a very important role in the regulation of small and medium businesses. An optimal act can increase the likelihood of compromise between parties and better compensate consumer, in addition to deterring potential violators from committing the offense. This can lead to a fair distribution of wealth and lower social cost. Examination of these regulations shows that the Guild System Act has not have proper procedure in detecting, investigating and imposing the necessary enforcement. Due to the low value of business litigation, likelihood of consumer complaint is very low. Therefore, on the one hand, fines should be increased to cover this deficiency and on the other hand, it should increase the likelihood of litigation; because the excessive increase in penalties, only increases social costs. For this purpose, instruments such as class action and punitive damages can be used. The process of dealing with business violations also faces serious difficulties. On the one hand, consumer’s argument for filing complaint are limited and on the other hand, they have to file their complaint first with union. An institution that is itself a supporter of business and safeguards its interests and is not entitled to receive any money for its action. Therefore, the law should explicitly require unions to refer the case to the handler authority if a business’s violation be proved- though compromised between the consumer and business.