3.6.1c - part 2 gov intervention

Question 1

pros of nationalisation

Answer 1

● Investment is needed for the long term , but in a private company investment is
only short term as shareholders will see no benefit from long term investment. This
may lead to a poor quality of service.
● In the case of a natural monopoly, it is better for monopoly to be run by the state as
they aim to maximise social welfare rather than a private business who will maximise
profits.
● The government will consider externalities. so market failure minimised
● The government will guarantee a minimum level of service for people who suffer
the risk of being cut off from the service, due to the lack of potential profit from
providing for them. + So they meet consumer wantsa nd needs at a price consumers want showing AE, maxing CS
● Some say it would be dangerous to allow key strategic industries to fall into private
hands as this could have disastrous effects for the country

Question 2

Cons of nationalisation

Answer 2

● However, nationalised industries suffer from the principal-agent problem and
moral hazard, as managers know that any loss they make will be covered by the
government.; moral hazard introduced
● They will experience X-inefficiency and this could cause higher prices for
consumers, especially since the industry will become a monopoly. so diseconomies of scale occur due to lack of coordination, communication, motivation etc due to lack of comp and profit motive
- less SNP so less dynamic efficiency
● They will be influenced by government’s decisions and the government may not
have enough money to invest; nationalisation is very expensive and unaffroable in austerity; opportunity cost

Question 3

Restrictions on monopsony power

Answer 3

● Monopsonists are able to exploit suppliers by reducing prices. The government can
prevent these by passing anti-monopsony laws which make certain practices illegal
and can introduce an independent regulator who will force monopsonists to buy
fairly.
● Fines can be put in place for those who exploit their power and minimum prices
may be introduced to ensure suppliers are paid a fair amount. Self-regulation can
also be used, but this is weak.

Setting up a specific regulator to monitor the activities of firms with monopsony power, such as the UK’s Groceries Code Adjudicator (GCA). The GCA, which adjudicates on issues relating to the groceries supply code of practice, came into force in 2013 and monitors the trading practices of the 10 regulated grocery retailers that have an annual turnover of more than £1 billion, and promotes what it calls ‘fair dealing’ in the supermarket sector.
Fines for firms exploiting monopsony power, such as the fines that can be imposed by the GCA. The GCA can impose fines of up to 1% of their annual UK turnover.
Controlling prices paid to suppliers – such as setting minimum price

Question 4

Wokers rights to protect employees

Answer 4

● The government protects employees through health and safety laws, employment
contracts, redundancy processes, maximum hours at work and the right to be
in a trade union. The government can also encourage firms to draw up codes of
conduct relating to employment practice.
● The problem is that if workers’ rights are too strong, employers will be unwilling to
take on new workers due to the extra cost of employing these workers

Question 5

What does nationalisation depend on

Answer 5

• yes nationalisation has a huge cost that burdens tax payer but society c=gets a better delivery of services can private sector
• PPE is better to get best of both rpivate and public sector benefits
• role of regulation; strong regulation of prviate sector better than nationalisation
• nationalisation unecessary if there is high competition in private sector
• if private sector firms are large and focus on EOS that aligns with keeping the service afforable so dont eliminate that

Question 6

Key facts of rm privatisation

Answer 6

• RM was loss making to the tax payer prior privatisationm in serious decline and very inefficient
• privatised in oct 2013
• floatation of royal mail raised income fro the government (£2bn)
• strict regulation from ofcom and universal postal servce requiremetn has reamined with rm commited to delivering letters and parcels to any postcode in the country within 3 working days for 6 days a week and price of stamps are regulated

Question 7

pros of the rm privatisation

Answer 7

• The traditional letter market is in large decline with volumes 25% lower than the last decade
  o The Universal Postal Service is a regulated requirement to deliver letters and parcels to any address in the UK 6 days a week
  o Since privatisation, Royal Mail has focussed more on parcels with sizeable profits made
  o Lucrative dividends are paid as well as strong re-investment back into the company
  o Cost cutting measures in key areas have allowed the company to remain profitable despite strict price regulation

Question 8

How did the privatisation of rm go down?

Answer 8

• On 10 October 2013, the Government published its announcement of the Offer Price setting the price of the shares at 330p per share
• Government retained 30% of shares in Royal Mail
• 10% of the shares given free to Royal Mail
  employees
• Total proceeds of the sale were £1.9 billion
• Royal Mail also owns Parcel Force

Question 9

Evaluate the privatisation

Answer 9

• was the selling share price too low; could the gov have made more as share prices rose the day after the sale
• eval: regulation in key areas
• eval: 11,000 jobs lost in the three years post privatisation as part of cost cutting measures with strong worker strikes in 2022

Question 10

Challenges for royal mail

Answer 10

• Retailers and e-retailers
  – Amazon own-delivery network adds capacity equivalent to a
  new operator
  – Same day delivery services bought byeBay
  – Retailers e.g. Tesco developing in-house Click & Collect / returns services
  – Third party click & Collect continues to grow
• Contestable parcels industry – rival parcel/mail firms
  – DPD and Hermes announced Sunday deliveries
  – Yodel launches courier collec$on for online traders
  – TNT has started direct delivery of mail in some UK ci$es

Question 11

What is the universal service obligation

Answer 11

• Royal Mail has a legal obliga$on to deliver letters everywhere in the country with a delivery to each postal address once per day
• Increasing compe$$on in direct mail deliveries from rivals such as TNT (opera$ng in London) are ea$ng into Royal Mail’s market share in more profitable urban areas
• Royal Mail must s$ll deliver to rural areas where the service runs at a substan$al loss

Question 13

example of deregulation

Answer 13

telecoms, airline industry, banking, gas and electricity, taxi and private hire, parcel services

Question 14

effects of deregulating mail

Answer 14

• RM lost monopoly on delivery of larger letters and parcels, opening market to competition from DHL, DPD, TNT and evri
• growth of e commerce and online retail as parcel delivery companies can compete to rpovide a delivery service to online retailers

Question 15

pros of airlines eu open skies deregulation

Answer 15

• 1990,eu open skies policy took away state control of fares and service routes so EU airilines could offer services without requirement to land at or take off from a home airport
• took a few years before significant competiton was seen but now is a success story
• multiple airlines compete on several high profile routes so consumers get low fare, large number of routes and regular services from airports
• birth of low cost carriers like easyhet, ryanair, flybe, het2 so incubent must lower fares

Question 16

cons of airlines eu open skies deregulation

Answer 16

• some routes exits with a dominant supplier controlling the services and airlines rhat try to operate in a highly competitive enviro are now susceptible to losses, bankrupty and redundancyies
• cots cutting in dangerus areas such as saftey though safety records post deregulation have improved albeit it is truw that many low cost carriers reduced comfort of flying and force extar charges on necessar complements to flying to cut costs

Question 17

Pros of dergulation of buses

Answer 17

• uk bus market deregulated since 1980 with abolition of road service licensing where gfimrs had to obtain a licence to operate a route from local council
• created a contestable market and meaningful competiton and multiple bus companies could offer same route
• intetnion was AE improves, reduce fares toward MC and increase number of services offered incentivising people to use transport over car

Question 18

Why was deregulation ineffective

Answer 18

• lack of regulation of incumbent firm practices
• used size and presence to dirve newbies out using anti comp strategies like predatory pricing, heavy advertising, flooding routes with bueses causing dangerous driving conditions, congestion and pollution
• several areas left with monopolu or oligopoly providers like stagecoach in cambridge who has almost monopoly control and high prices
• overall market is an oligopoly controlled by five firms

Question 19

Why was uk train operating services privatised in early 1990s

Answer 19

• huge decline in passenger nubers and asefty issues, quality concerns, low no of services offered and a drag on taxpayers on funds
• intention was to make running of rail services more efficient as comp drove reductions in fares, increased routes and passenger numbers, better quality provision and more investment back intro rail provision

Question 20

How did privatisation of uk railway occur

Answer 20

• entire track infrastructure splint into chunks (franchises) with private train operators bidding to win the right to operate services as a franchisee on that part of the network
• gov would choose winner based on money bid and quality of services the firm has planned to deliver so competiton occurred in bdding stage

Question 21

Succes of rail privatisation 1990s?

Answer 21

• increase passy numbers, comp led to limited fare rises where successful but the current privatisation model wasnt as successful as hoped
• fares capped by ORR prevent monopoly prices, delays are common with poor quality at peak times, investment is limited as profits go back to shareholders and certain routes in demand not offered due to lack of profitabiliyt
• taxpayers has to shar burdne of running train servuces with subsidies of £4bn a year gogin to train operating services ot keep them afloat (monopoly natual diagram)

Question 22

What did uk labour party use as evidence of need for nationalisation

Answer 22

east coast mainline
- East Coast run by (state-owned) Directly Operated Railways (DOR) from 2009 until 2015 after two former private operators, first GNER then National Express, failed to meet their financial commitments is regarded as having run a good profitable service which delivered revenues to the Treasury.

Question 23

State the case for rail nationalisaton

Answer 23

• stagecoach and virgin relinquished the franchise for east coast mainline in 2018 to the state due to a lack of profitability and when state owned, it made profit providing a return to taxpayers ewith limuted delays
  -since 2021 given the impact of coronovirus on rail use, train companies are reliant on state funding to stay afloat hence uk gov has announced a swithc to state determined contracts instead

Question 24

Why else should train network be nationalised

Answer 24

• ## Profits from running the train network can flow to the Treasury and benefit all tax-payers. Train operating companies in the private sector pay routinely pay more than £200m a year in dividends to their shareholders