Public ownership, privatisation, regulation and deregulation of markets Flashcards
What is public ownership?
Public ownership refers to the government owning and operating firms or industries, often adopted for natural monopolies or essential services where private ownership may not serve the public interest effectively.
What are the advantages of public ownership?
Advantages include the provision of public goods, management of natural monopolies, and prioritisation of social welfare over profit maximisation.
What are the disadvantages of public ownership?
Disadvantages encompass potential inefficiencies, political interference, and financial burdens on taxpayers.
What is Privatisation?
When state run organisations/government run is sold off to the private sector (idea that private sector is more efficient).
Advantages of privatisation?
1) Increase in AE (operating competitively at mc=ar rather than mc=mr)
2) Less x inefficiency
3) Efficiency incentive drives dynamic efficiency
What are the disadvantages of privatisation?
1) Limited competition (makes less AE and less PE)
2) Loss making services cut even if socially desirable (e.g certain bus roots)
3) Loss of natural monopoly and EOS benefits
What are some evaluation points for the use of privatisation?
1) AE and PE will vary depending on the level of competition after privatisation
2) Depends on government regulation (less regulation will jut lead to monopoly power exploitation)
What are examples of monopoly regulation?
1) Price regulation: government can put in place maximum prices for monopoly’s
2) Quality control
3) profit control
4) wind fall taxes on profit
5) merger policy
What are evaluations points for regulation?
1) Level of information (asymmetric information between monopoly and gov policy makers, monopolies obvious know costs and quality etc much better than gov do)
2) Costs vs benefits (are admin costs worth regulating, depends on objectives aims)
3) Regulatory capture (Regulator acting in favor of that industry rather than in the public interest)
4) Depends on actual benefits of monopoly
What is regulatory capture?
Regulatory capture occurs when a government agency, established to regulate an industry, acts in favor of that industry rather than in the public interest. This form of government failure can lead to policies and regulations that benefit producers at the expense of consumers. (Example of government failure).
What is deregulation?
Theory of Government reducing legal barriers to entry in given industries, incentivising more firms to enter market, promoting competition.
Advantages of deregulation?
1) More firms will increase consumer choice (lower prices)
2) increase competition increases both AE and PE
3) Still some profits hence DE
Disadvantages of Deregulation?
1) loss of natural monopoly (AC increase and fall in PE additionally it will lead to a wasteful duplication or resources which is less AE)
2) Formation of oligopolies and local monopolies
What are evaluation points of deregulation?
1)
What is a real life example of regulatory capture?
Interstate commerce commission (ICC) established to regulate railroad companies ended up actually lifting prices and increasing barriers to entry (less competition) due to monopoly railroad companies influence with money.
