Ebook Economics (7th edition): Part 2
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Ebook Economics (7th edition): Part 2
Government Policy towards BusinessCHAPTER MAP13.1Competition policy368Competition, monopoly and the public interest 36« The targets of competition pol Ebook Economics (7th edition): Part 2licy368Oligopolistic Collusion: restrictive practice policy 369 Competition policy in lhe European Union369UK competition policy370Assessment of competition policy37313.2Privatisation and regulation375Nationalisation and privatisation37SHow desirable Is privatisation?37SRegulation: identifying the S Ebook Economics (7th edition): Part 2hort-run optimumprice and output377Regulation: Identifying the long-run optimumprice and output37«Regulation in the UK378Increasing Competition in theEbook Economics (7th edition): Part 2
privatisedindustries382In this chapter we continue our examination of government policy to tackle market imperfections. The focus here is on the probGovernment Policy towards BusinessCHAPTER MAP13.1Competition policy368Competition, monopoly and the public interest 36« The targets of competition pol Ebook Economics (7th edition): Part 2ion.In section 13.1 we examine ‘competition policy’. We will see that the targets of such policy include the abuse of monopoly power, the problem of oligopolistic collusion, and mergers that will result in the firm having a dominant position in the market.Then in section 13.2. we look at privatisati Ebook Economics (7th edition): Part 2on and the extent to which privatised industries should be regulated to prevent them abusing their market power. We also consider whether it is possibEbook Economics (7th edition): Part 2
le to introduce enough competition into these industries to make regulation unnecessary.The relationship between government and business is always likGovernment Policy towards BusinessCHAPTER MAP13.1Competition policy368Competition, monopoly and the public interest 36« The targets of competition pol Ebook Economics (7th edition): Part 2ment that will ensure high levels of employment, output and growth. In this chapter we see the conflicts that can arise as a consequence.368 13 GOVERNMENT POLICY TOWARDS BUSINESS13.1J COMPETITION POLICYKI 20Competition, monopoly and the public interestMost markets in the real world are imperfect, wi Ebook Economics (7th edition): Part 2th firms having varying degrees of market power. But will this power be against the public Interest? This question has been addressed by successive goEbook Economics (7th edition): Part 2
vernments in framing legislation to deal with monopolies and oligopolies.It might be thought that market power Is always 'a bad thing', certainly as fGovernment Policy towards BusinessCHAPTER MAP13.1Competition policy368Competition, monopoly and the public interest 36« The targets of competition pol Ebook Economics (7th edition): Part 2er, the higher will prices be relative to the costs of production. Also, a lack of competition removes the incentive to become more efficient.Rul market power Is not necessarily a bad thing. Firms may not fully exploit their position of power - perhaps for fear that very high profits would eventuall Ebook Economics (7th edition): Part 2y lead to other firms overcoming entry barriers, or perhaps because they are not aggressive profit maximisers. Even if they do make-large supernormalEbook Economics (7th edition): Part 2
profits, they may still cliarge it lower price (han more competitive sectors of the industry because of lheir economies of scale. Finally, they may usGovernment Policy towards BusinessCHAPTER MAP13.1Competition policy368Competition, monopoly and the public interest 36« The targets of competition pol Ebook Economics (7th edition): Part 2.Competition policy could seek to ban various sfnrcfwi-s. For example, it could ban mergers leading to market share of more than a certain amount. Most countries, however, prefer to focus on whether the practices of particular monopolists or oligopolists arc anti-competitive. Some of these practices Ebook Economics (7th edition): Part 2 may he made illegal, such as price fixing by oligopolists; others may be- assessed on a case-by-case basis to determine whether or not they should beEbook Economics (7th edition): Part 2
permitted. Such an approach does not presume that the mere jWKses-sion of power is against the public interest, bill rather that certain uses of tliaGovernment Policy towards BusinessCHAPTER MAP13.1Competition policy368Competition, monopoly and the public interest 36« The targets of competition pol Ebook Economics (7th edition): Part 2d oligopolies: monopoly policyMonopoly policy seeks to prevent firms from abusing their economic power. Although it is referred to as 'monopoly' policy, it also applies to many large oligopolists acting on their own. The approach has been to weigh up the gains and losses to the public of individual Ebook Economics (7th edition): Part 2firms' behaviour.As we saw in Figure 6.10 (on page 176), faced with the same cost curves as an industry under perfect competition, a monopoly win charEbook Economics (7th edition): Part 2
ge a higher price, produce a lower output and make a larger profit. On the other hand, a monopolist may achieve substantial economies of scale, with tGovernment Policy towards BusinessCHAPTER MAP13.1Competition policy368Competition, monopoly and the public interest 36« The targets of competition pol Ebook Economics (7th edition): Part 2for research and development (R&D). Illis may result in better products and/or lower prices.Thus the government (or regulatory authority, if separate from the government) has to work out. if it insisted on a reduction In price, whether R&D and other investment would thereby suffer, and whether the c Ebook Economics (7th edition): Part 2onsumer would lose in the long nm.Government Policy towards BusinessCHAPTER MAP13.1Competition policy368Competition, monopoly and the public interest 36« The targets of competition polGovernment Policy towards BusinessCHAPTER MAP13.1Competition policy368Competition, monopoly and the public interest 36« The targets of competition polGọi ngay
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