Government Intervention (2) Flashcards
What are 4 ways in which a government can intervene to control monopolies?
1) Price regulation.
2) Quality standards.
3) Profit regulation.
4) Performance targets.
How does price regulation control monopolies?
Price may be capped in an industry (e.g. through a maximum price) to prevent monopolists from charging excessive prices, enabled by their large market share.
How does profit regulation control monopolies?
Regulators can set a maximum amount of profit that a monopolist can earn, so their level of profit is no more than what it would be in a competitive market. This provides an incentive for monopolists to reduce costs and not to charge extremely high prices.
How do quality standards control monopolies?
They ensure that all firms, even monopolists, are providing a minimum standard, making sure consumers are not disadvantaged or exploited.
How do performance targets control monopolies?
They ensure that monopolists meet certain requirements. E.g. in the utility industry, there are targets on how quickly water leaks are fixed.
What is competition?
The number of firms within an industry/market, with the industry/market being competitive if there are a large number of firms within it.
What is contestability?
The threat of competition.
What is deregulation?
The process of removing government controls from markets.
How can the government intervene to promote competition and contestability (4)?
1) Promoting small businesses, therefore increasing competition.
2) Deregulation - removing government controls from markets.
3) Competitive tendering for government contracts.
4) Privatisation - selling state-owned firms to private sector owners.
What are 4 ways a government can encourage the growth of small businesses?
1) Reducing the level of welfare benefits to encourage people to start small businesses.
2) Lower taxes for business start-ups.
3) Small business grants.
4) Training grants.
What is competitive tendering?
When the government invites private firms to bid for the contract to produce a public good/service. The firm with the lowest cost, subject to quality, wins the contract.
What is government outsourcing/contracting out?
Using private sector firms to provide goods and services on behalf of the state.
What is privatisation?
The selling of state-owned firms to private sector owners.
What is the benefit of competitive tendering to the public sector?
An improvement in efficiency for public sector organisations.
How can the government protect suppliers from firms with monopsony power (3)?
1) Appointing independent regulators, who can force the monopsonist to act competitively.
2) The introduction of self-regulation through an industry code of practice.
3) Nationalisation - taking industries into public ownership.
