3.6 - Intervention: Competition + Contest Flashcards

1
Q

What are the 4 forms of intervention to promote competition + contestability?

A

Deregulation
Promotion of small business
Privatisation
Competitive tendering

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2
Q

What does deregulation involve?

A

Removal of regulation/policy in order to liberalise markets

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3
Q

When will deregulation fail?

A

In a natural monopoly
Either results in loss of NM or failed competition creation

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4
Q

What are the potential benefits of deregulation?

A

Increased efficiencies
Passed on to consumer
Restricts pricing power
Improved investment potential

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5
Q

What are the advantages of restricted pricing power?

A

Profitability created by cost reduction
Price set closer to MC
ALLOCATIVE EFFICIENT

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6
Q

How is the promotion of small business generally achieved?

A

Tax breaks + Subsidisation
Allows entry + growth

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7
Q

What are the drawbacks of small firm competition?

A

Can’t access EoS
Quality + success of firm more important than govt. intervention
Information + govt failure

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8
Q

What is competitive tendering?

A

Councils/govt allow firms to bid for the right to run certain services

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9
Q

What is the purpose of competitive tendering?

A

Ensures firms develop efficient operation methods
Best bid/proposal wins

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10
Q

What are the drawbacks of competitive tendering?

A

Bidding costs
Product quality may be compromised
Requires govt supervision
Short term contract

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11
Q

Which alternative competition strategies might a govt employ?

A

Predatory price legislation
Subsidise entrants
Force firms to allow competitors access to their networks

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