4.1.8.8 Public ownership, privatisation, regulation and deregulation of markets Flashcards
What is public ownership (nationalisation)?
Government control of industries (e.g., UK railways post-1945).
Creates natural monopolies for utilities (water, electricity grids).
List 3 arguments FOR public ownership.
Social welfare focus (e.g., affordable transport).
Positive externalities (e.g., reduced pollution from public transit).
Avoids monopoly exploitation in essential services.
List 3 arguments AGAINST public ownership.
Inefficiency (no profit incentive → X-inefficiency).
Taxpayer burden (subsidies for losses).
Bureaucratic delays in decision-making.
What is privatisation? Give a UK example.
Transfer of assets to private sector (e.g., British Airways, 1987).
Often involves deregulation to encourage competition.
List 3 arguments FOR privatisation.
Profit incentive → efficiency gains (lower costs).
Consumer choice (allocative efficiency).
One-off government revenue (e.g., Royal Mail sale).
List 3 arguments AGAINST privatisation.
Quality cuts (profit maximization focus).
Natural monopolies may exploit consumers.
Job losses from restructuring.
Give 2 examples of market regulation.
Price caps (e.g., energy markets).
Bans/requirements (e.g., school leaving age).
Why regulate markets?
Correct market failures (e.g., pollution permits).
Protect consumers (safety standards).
Example: Compulsory recycling → positive externalities.
What are drawbacks of regulation?
High costs (enforcement/administration).
Black markets (e.g., banned goods).
Firm costs passed to consumers.
Evaluate deregulation.
Pros:
Boosts competition (e.g., airline industry).
Reduces ‘red tape’ costs.
Cons:
Risk of lower standards (e.g., environmental damage).
What is regulatory capture?
When regulators serve industry interests over public welfare.
Cause: Asymmetric information (e.g., regulators rely on firm data).
Example: OFGEM accused of favoring energy firms.
How did UK rail privatisation perform?
Mixed results:
✓ More competition on some routes.
✗ High ticket prices + public subsidies still needed.
How does this link to market structures?
Public ownership → natural monopolies.
Privatisation → aims for competitive markets.
