Th3.6: ^^ Competitive Tendering

Question 1

Why does the government have to provide certain goods and services?

Answer 1

because they are merit or public goods but this does not mean that the state has to be the producer of all these goods and services

Question 2

Goods, such as the sheets in NHS hospitals, are produced by…

Answer 2

produced by the private sector and then bought by the public sector

Question 3

A similar thing can be done with services:

Answer 3

the government can contract out the provision of a good or service to private companies e.g private firms could be employed to run hospitals

Question 4

How can competition be introduced into the market?

Answer 4

as the government will request competitive tenders by drawing up a specification for the good or service and inviting private firms to bid for the contract to deliver it - the firm offering the lowest price wins the contract, subject to quality guarantees

Question 5

How does this help the government?

Answer 5

helps to minimise costs for the government and ensures efficiency by allowing for competition in the market

Question 6

How does this help the private sector?

Answer 6

the private sector will have more experience running the projects, so it is likely they will be better managed

Question 7

However what are the problems with competitive tendering?

Answer 7

it may not always be the most cost-effective way and the process of collecting bids is costly and time-consuming. the private sector may not aim to maximise social welfare in the same way the government would and could use cost-cutting methods that reduce quality

Question 8

It is important they prevent firms…

Answer 8

prevent firms undertaking anti-competitive practices, such as collusion and predatory pricing. the problem is that it is very difficult to prove overt collusion and almost impossible to prove tacit collusion