3.3.11 Government Intervention Flashcards
Through what methods can governments control monopolies?
- Price Controls
- Profit Controls
- Quality Standards
- Performance Targets
- Breaking up Monopolies
- Lower Entry Barriers
- Windfall Taxes
- Privatisation/ Nationalisation
- Deregulation
- Subsidies
- Controlling mergers
What factors are government intervention to regulate monopolies intended to influence?
- Prices
- Profit
- Efficiency
- Quality
- Choice
How can government limit monopolies by encouraging competition?
- Promotion of Small businesses
- Punishing anti-competitive practices
- Deregulation
- Competitive Tendering
- Privatisation
What is the effect of the government putting price controls on Monopolies?
By setting the max price monopolists can charge as equal to the marginal social cost of production, to ensure allocative efficiency
What is the problem with price controls as a method of regulating monopolies?
- Can’t know where the cost and revenue curves lie and what the allocatively efficient point of output is.
- Limits growth because it removes the incentive from profit maximising firms
What is the effect of the government putting profit controls on Monopolies?
Intended to make firms have other objectives than profit maximisation (e.g. improving quality or efficiency)
What is the problem with profit controls as a method of regulating monopolies?
- Requires regulators that know the costs and rates of return of certain industries
- Causes inefficiency
- incentive to get too much capital
How do profit controls cause technical inefficiency?
There is no incentive to minimise costs as they will always be able to earn a level of profit above that.
How do profit controls cause monopolists to employ too much capital?
If their agreed level of profit covers the costs of capital they will earn more profit the more capital they have
What is the intended effect of quality controls by governments on monopolists?
To ensure a certain level of quality that would not otherwise occur, as they are naturally profit maximising
What is the problem associated with quality and performance targets for monopolists?
They will almost always find ways to game the system and get out of fulfilling those duties
What is the intended effect of breaking up monopolies?
Increase contestibility and competition
What is the potential issue with breaking up monopolies?
May lead to welfare loss and inefficiency if it was a natural monopoly
What is the intended effect of lowering legal entry barriers?
Improve contestability and competition.
What is the problem of windfall taxes for controlling monopolies?
If used too regularly, institutions can alter their records to avoid paying the tax
What effect will privatising a nationalised industry?
Improve productive efficiency, but not break up the monopoly, just change ownership
What effect will nationalising a privatised monopoly industry have?
Shift the focus to customer welfare, not profit, but not break up the monopoly.
How can governments use subsidies to control monopolies?
Ensure monopolies are operating as the most allocatively efficient and socially optimal point of output
What is the intended effect of merger policy by governments on monopolies?
Prevents the creation of monopolies by stopping mergers that would result in a monopoly.
What can Monopolists do to make control by the government unnecessary?
Sugest self-regulation.
What is the problem with self-regulation?
It is often very weak and badly enforced so it is easy for monopolists to get out of
How does encouraging small businesses work to increase competition in a monopoly market?
Governments can give free training, tax benefits and grants to new entrants in order to lower barriers to entry
How can governments protect suppliers from monopsony?
Passing anti-monopsony laws or appointing monospony regulators
How can governments protect workers from exploitation by monopolies?
Passing laws such as max working hours and health and safety, and supporting unions
