3.6 - Intervention: Competition + Contest Flashcards
What are the 4 forms of intervention to promote competition + contestability?
Deregulation
Promotion of small business
Privatisation
Competitive tendering
What does deregulation involve?
Removal of regulation/policy in order to liberalise markets
When will deregulation fail?
In a natural monopoly
Either results in loss of NM or failed competition creation
What are the potential benefits of deregulation?
Increased efficiencies
Passed on to consumer
Restricts pricing power
Improved investment potential
What are the advantages of restricted pricing power?
Profitability created by cost reduction
Price set closer to MC
ALLOCATIVE EFFICIENT
How is the promotion of small business generally achieved?
Tax breaks + Subsidisation
Allows entry + growth
What are the drawbacks of small firm competition?
Can’t access EoS
Quality + success of firm more important than govt. intervention
Information + govt failure
What is competitive tendering?
Councils/govt allow firms to bid for the right to run certain services
What is the purpose of competitive tendering?
Ensures firms develop efficient operation methods
Best bid/proposal wins
What are the drawbacks of competitive tendering?
Bidding costs
Product quality may be compromised
Requires govt supervision
Short term contract
Which alternative competition strategies might a govt employ?
Predatory price legislation
Subsidise entrants
Force firms to allow competitors access to their networks
