3.6 - Government Intervention: Monopoly Flashcards
What are the 4 main methods of monopoly regulation?
Price regulation
Profit regulation
Quality standards
Performance targets
What are the potential benefits of monopolies?
EoS (Natural)
Shareholder dividends
Tax revenue
Potential C+B benefits
What are the potential drawbacks of monopolies?
X inefficiencies
Price manipulation
Consumer choice
Dynamic inefficiency
Diseconomies
How is profit regulation enforced?
Corporation tax - 20%
Windfall tax - Applied to excess profits
Why is profit regulation difficult?
Arbitrary
Disincentive to cut costs
Hard to determine cause of profit
Profit required to fund investment
Why may a regulator struggle to monitor profit?
Offshoring + transfer pricing
Difficult to track subsidiaries
What are the arguments for a price cap?
Curtail monopoly power
Improves real wages + living standards
Stimulates productive efficiency
What are the arguments against a price cap?
Distorts price mechanism
Potential information failures
Reduces capital investment
May cause net loss of consumer utility
What is the intended pathway of a price cap?
Cap set below profit max. price
Reduces economic profit
Improves cost efficiency
Allocatively efficient firms
Leads to market exit
Improves real competition
What is the purpose of quality controls + performance targets?
Protect consumer welfare
Improve social efficiency of a firm
What can quality controls + performance targets entail?
Health + safety standards
Product quality + variety
Service waiting times
Why are performance targets sometimes considered weak?
Lack of sanctions for firms who miss standards
What are the potential drawbacks of targets/controls?
Strategic firms
Regulatory capture
What is regulatory capture?
Increasing sympathy + lenience of a regulator towards a firm
