Contest-ability, Nationalisation, Regulation

Question 1

What is the definition of contest-ability

Answer 1

measured by how much the entrant gains from entry vs the cost of entering (overcome barriers of entry). Barriers to exit = sunk costs

Question 2

What determines contest-ability

Answer 2

• Low barriers of entry/exit
• Large pool of potential entrants
• Good information
• Technology

Question 3

What are the benefits of contest-ability

Answer 3

• Lower prices for consumers
• Increased Quality
• Productive efficiency (incentive to reduce costs)
• Incentive to lower prices (to beat competition)

Question 4

What are the cons of contest-ability

Answer 4

• Lack of dynamic efficiency
• Cost cutting could come from the wrong places
• Anti - competitive strategies
• Less likely to reach EoS

Question 5

What does the degree of contest ability depend on

Answer 5

• Regulation
• Role of technology
• Dynamic efficiency
• Barriers to entry/exit

Question 6

What is nationalisation

Answer 6

when the government takes ownership and control of a private business of industry

Question 7

what are the pros of nationalisation

Answer 7

• Public interest is at heart (allocative efficiency)
• Long term is in mind (infrastructure + R&D)
• Lower chance of market failure
• EoS (larger access to capital)

Question 8

What are the cons of nationalisation

Answer 8

• DisEos (too large and government complex)
• Lack of incentive to minimise cost -> no supernormal Pi
• Prices may increase
• Political priorities may dominate management decisions
• Priorities may differ

Question 9

What could nationalisation depend on

Answer 9

Existing competition in market and problems seen currently?

Question 10

What is the regulatory body we need to know

Answer 10

Competition and Markets Authority (CMA)

Question 11

What are some of the aims of the regulatory bodies

Answer 11

• Regulate company sizes
• Restrict anti-competitive behaviour
• Product safety
• Prices
• Promote competition
• Quality standards

Question 12

what are the methods of monopoly regulation

Answer 12

• Price regulation ( price increase no more than RPI)
• Quality control/performance targets
• Profit regulation (cover costs +%of capital employed)
• Merger policy

Question 13

What are the contingent factors with price, performance and profit regulation

Answer 13

• Imperfect information
• Unintended consequences (quality may decrease)
• Firms may be less careful with costs as they know it will be covered/may distort figures to get the most profit possible