LS17 : Competition, Protecting Suppliers & Workers Flashcards
what is an SME?
small and medium enterprise
give an example of an SME.
local independent pizza takeaway
what is a start up?
company initiated by an entrepreneur to develop scalable business model. intend to grow large beyond the solo founder
give an example of a start up.
- uber
- ocado
- air bnb
why do governments seek to support start-ups and SMEs?
improve the competitiveness of markets
what benefits do small businesses and start-ups bring?
- create competition
- create jobs
- increased choice for consumers
- some are source of exports
- seed-bed for innovation
- may be more innovative, flexible and quick in responding to market changes
what problems do start-ups and SMEs face?
- struggle to find credit
- lack business skills & expertise
- difficult to recruit competent staff
what can the government do to support start-ups and SMEs?
- provide information on how to set up business
- deregulate make it easier to enter markets
- streamline process for setting up
- provide training for business skills
- educational reform to increase skills of workforce
- provide business mentoring services
what is competitive tendering?
process in which private-sector firms compete to win contracts to perform tasks on behalf of the gov. gov chooses firm they believe will be best in cost and quality.
why is competitive tendering used?
introduces profit motive leading to increased efficiency and quality. taxpayer benefits from improved / cheaper public services
what are the benefits of competitive tendering?
if competitive market for gov contracts then private sector will be responsible for allocating more resources in economy. improves quality and choice, decreases prices. taxpayer therefore benefit
what are the downsides of competitive tendering?
- if gov push for lower prices, compromises quality
- taxpayer often end up with poor value for money as outsourcers can negotiate well
- contracts put out tend to only have a few bidders so competition is limited
what is privatisation?
when a firm or industry change from public sector to private sector
why does privatisation supposedly increase efficiency?
putting economic activity to private sector introduces :
- profit motive
- competition
encourages firms to reduce costs and improve quality to increase profit. causes increase in efficiency
which industries have been privatised in the UK?
rail
energy
water
what are the disadvantages of privatisation?
- natural monopoly conditions are unlikely to result in improved conditions for consumers
- social costs and benefits are more likely to be ignored
- gov loses out on source of revenue
- public sector assets are often sold too cheaply
- infrastructure arguably better off under state as vital to national interest
what are the advantages of privatisation?
- private companies have stronger incentive to cut costs, increase efficiency & raise productivity
- gov gains revenue from sale of assets
- if state monopoly replaced by several firms, increase in competition, lowers price & increase quality
what is a private finance initiative (PFI)?
gov takes competitive bids and buys investment projects such as construction of a hospital. gov pays back costs of whole project over set period of time
what are the advantages of PFI?
- private sector better achieve cost efficiencies
- extra funding can kick start more projects
- PFI firms pay tax in theory making project cheaper for gov
- private sector better for innovation, higher quality for delivery, lower maintenance costs
what are the disadvantages of PFI?
- debt costs
- inflexibility and poor value for money
- risk with success
- admin costs are high (advisors, lawyers, bidding)
- gov becomes dependent on private sector
what is deregulation?
removal of government regulations
what is the aim of deregulation?
makes entry and exit to a market easier, raising contestability. increases number of firms, increases competition leading to greater efficiency and consumer satisfaction
what are the advantages of deregulation?
- price
- quality
- innovation
explain the price advantage of deregulation.
deregulation increases contestability. incumbent firms less inclined to profit maximise due to new entrants, so lower prices to stay competitive
explain the quality advantage of deregulation.
increased contestability puts pressure to increase quality due to threat of new entrants
explain the innovation advantage of deregulation.
deregulation makes it easier to enter market so start-ups more likely to be innovative and take risks
what are the disadvantages of deregulation?
- market stability
- public safety
explain the market stability disadvantage of deregulation.
can lead firms to take excessive risks and load up on debt, leading to financial market failure. (particularly in financial service market)
explain the public safety disadvantage of deregulation.
deterioration in public safety. eg. loss of life in grenfell
what steps can regulators take to protect suppliers?
- fines & jail sentences
- increase contestability
- minimum prices
what steps can regulators take to protect workers?
- minimum wages
- legislation (health & safety, paid leave, pensions, break period)
- fines & jail sentences
