Competition Policy and Monopoly Regulation Flashcards
1
Q
Name 2 Pros of Monopoly Regulation
A
- Price Regulations are designed to make sure monopolies cannot raise their prices excessively
- RPI - x incentivises efficiency and cost-cutting for larger Profit Margins
- Quality Control and Performance Targets mean that firms cannot take shortcuts, and are held accountable
- Profit Control Regulation increases the incentive to increase Productivity
- Taxes on Profits can lead to Investment back into the firm
2
Q
Name 2 Cons of Monopoly Regulation
A
- Imperfect information leads to levels of x and k being incorrect
- Cost of regulating firms and looking at levels of x and k- Moral Hazard potentially
- There are often unintended consequences when firms try and beat the system (Tax evasion)
- Imperfect Information where firms can over-report costs and under-report profits for less strict regulation
3
Q
What are some of the Evaluation points of Monopoly Regulation?
A
- Level of Information available
- Weighing up the Costs and Benefits
- Regulatory Capture
- Government Failure Arguments
- Benefits of Monopolies in that Market
4
Q
Name 2 Pros of Privatisation
A
- Increases in Static efficiencies
- Consumer welfare gain
- Profit incentive means that Dynamic Efficiency can be achieved in the Long-Run
- Means of finance due to selling assets off to Private Sector
5
Q
Name 2 Cons of Privatisation
A
- Reduces competition if there is inadequate regulation, which causes Productive and Allocative Inefficiencies
- Governments often provide socially desirable goods/services without profit as a function. These will be cut, as private sector firms won’t provide them
- Loss of natural monopolies leads to more X-inefficiency and reduction in Economies of Scale
- No guarantee this firm will compete
6
Q
What are some of the Evaluation points of Privatisation?
A
- The level of competition after Privatising
- The level of Government Regulation
- The type of good or service provided
- PPPs can often be more beneficial than fully privatised
7
Q
Name 2 Pros of Nationalisation
A
- Greater Economies of Scale benefits
- More focus on state provision, fulfilling the needs and wants of society
- Less likely to be market failure arising from the Negative Externalities
- Public sector can exercise macroeconomic control in the industry, controlling inflation and unemployment
8
Q
Name 2 Cons of Nationalisation
A
- The size of the company can lead to diseconomies of scale
- Lack of profit motive increases inefficiency and there is less incentive to reduce costs
- Lower supernormal profits lead to Dynamic inefficiency, thus losses In technological changes
- Highly expensive, which could harm the taxpayer
- Opportunity Costs argument
- Higher prices and lower quantity due to low competition
- Greater risk of Moral Hazard as the Government will bail them out
- Political priorities could override commercial issues
9
Q
What are some of the Evaluation points of Nationalisation?
A
- Weigh up the Costs and Benefits of this
- PPPs (Public/Private Sector Partnerships), strong competition in the Private Sector and stronger regulation can be better than Nationalisation
- The size of Private Sector Firms
- The objective of Private Sector Firms
10
Q
Name 2 Pros of Deregulation
A
- The increased number of firms will increase Consumer Choice
- Increased Static efficiencies
- Competition means profits made will be reinvested, increasing Dynamic efficiency
11
Q
Name 2 Cons of Deregulation
A
- If the Monopoly is a Natural Monopoly, this becomes challenging. AC rises, Static inefficiencies will also rise as misallocation of resources
- This may form local monopolies and oligopolies due to regional differences
12
Q
What are some of the Evaluation points of Deregulation?
A
- Weighing up Short-Run and Long-Run, is there Contestability?
- Other Barriers to Entry
- Government regulation is often required in order to ensure there are no anti-competitive outcomes
