Nationalisation vs Privatisation Flashcards
(14 cards)
What is privatisation
when state run/government run organisations are sold off to the private sector (idea that the private sector is more efficient)
Explain the diagram for privatisation and the advantages that comes with privatisation
Privatisation is shown with a monopoly diagram. When there is competition after privatising, monopoly’s will price at AE increasing the consumer surplus and creating better prices, it will also create greater x efficiency due to competition incentivising low costs and also still creates dynamic efficiency.
Disadvantages of privatisation?
1) If low competition then private sector will be more productively and allocatively inefficient
2) Regulation costs to stop private sector exploiting monopoly power
3) Loss making services cut even if socially desirable e.g rural bus routes
4) Loss of natural monopoly and EOS benefits
What will privatisation outcomes depend upon?
1) The level of competition after privatisation
2) level of government regulation
3) Firms aims and objectives
What are examples of monopoly regulation?
- Price regulation (e.g max price)
- Quality control
- Profit control
- Windfall taxes on profit
- Merger policy
- privatisation
- Reducing trade barriers
What are windfall taxes for a monopoly?
A windfall tax on a monopoly is a one-time tax levied on the unexpectedly high profits that a monopoly has made, typically due to favourable market conditions or lack of competition, rather than due to the firm’s own efforts or investments. BUT IT CAN LEAD TO TAX EVASION.
What does monopoly regulation depend on?
1) level of information (gov failure)
2) costs vs benefits (gov failure)
3) Regulatory capture (gov failure)
4) benefits of monopoly
What is the argument of deregulating a monopoly?
Theory that government deregulating by reducing legal barriers to entry in given industries may incentivise more firms to enter market promoting competition. Diagram analysis: Move for mc=mr (profit maximisation) to mc=ar (allocative efficiency) .
What are the advantages of deregulating a monopoly? (reducing legal barriers to entry)
1) More firms will increase consumer choice incentivising AE
2) More x efficiency and productive efficiency
3) Still supernormal profit at AE so we will still get DE
What are the disadvantages of deregulation?
1) Loss of a natural monopoly (increases average costs and decreases productive efficiency also wasteful)
2) Formation of oligopolies and local monopolies (loss of economies of scales)
What is Nationalisation ?
Process of taking an industry into public ownership
What are the main benefits of nationalisation?
1) Greater EOS benefits (think financial benefit for investing with gov finances)
2) Improved Service Provision (prioritise public welfare over profit)
3) Reduction in Market Failures (leading to more socially optimal outcomes)
4) Better macroeconomic control (e.g managing employment levels and controlling inflation)
5) Profits benefit taxpayer rather than shareholders
Disadvantages of nationalisation?
- Potential diseconomies of scale
- Lack of competition low incentive to minimise costs
- complacent and wasteful production
- lack of SNP
- Highly expensive (burden on tax payer)
- higher prices due to lower competition
- greater risk of moral hazard
- political priorities
What does nationalisation depend on?
1) Funding vs benefit (long run benefit)
2) Is a public private partnership better (ppp)
3) Role of regulation (is nationalisation needed)
4) Competition in private sector and also the aims and size of private sector
