Contracts and other bargains are fundamental to competitive markets. Deregulated electric power and telecommunications markets look to contract to define the relationships between private firms, as well as between private firms and customers. As Joseph Kearney and Thomas Merrill (1998) note in the leading legal treatment of the topic of deregulation: “The new paradigm seeks to subject to ordinary contractual relations all common carrier and public utility services that can be provided through multiple competing providers” (1363). With deregulation, contract will become the primary mechanism for ordering market transactions between private firms and their customers, largely displacing traditional regulatory doctrines that required firms to provide service to customers on predetermined terms and conditions.

Contract is also fundamental to theories of regulation and regulatory law. As economists studying regulated industries with natural monopoly characteristics have long recognized, regulation bears structural similarity to a long-term bilateral contract (Goldberg, 1976; Joskow & Schmalensee, 1983). The actions of the regulator can be analogized to contracts and other bargains. More than for run-of-the-mill industries, the contractual understanding of regulation is fundamental to capital-intensive industries, such as electric power and telecommunications. For these infrastructure industries, capital investments comprise a large portion of the firm's costs. The firm is only able to pay for these investments over a sustained period of time, making contract a useful way of approaching the finance issue faced by firms and regulators (Gómez-Ibáñez, 2003). To the extent it encourages investment, commitment is fundamental to any account of economic regulation.