Regulatory Alternatives

Question 1

What is a regulatory alternative to natural monopolies?

Answer 1

Public enterprise (state owned)

Question 2

Why does public enterprise maximise welfare over private?

Answer 2

Government sets goal to maximise social welfare not profit

Question 3

What are some criticisms for public enterprises?

Answer 3

government lacks expertise
rules on public sector compensation may limit firms ability to attract top managers
firm may not be truly motivated to maximise social welfare

Question 4

What are some positives of public enterprises?

Answer 4

Undertake large investment activities deemed unprofitable by private firm
Focus on quality/reliability

Question 5

What is franchise bidding?

Answer 5

Competition for the market in the form of firms bidding for the exclusive right to supply

Question 6

In franchise bidding what do the firms bid on?

Answer 6

The price at which they will supply the service
Each firm bids down to its AC curve

Question 7

Draw a graph showing franchise bidding between firms

Answer 7

check ppt (22)

Question 8

IN FRANCHISE BIDDING WHAT DOES WELFARE EFFECT DEPEND ON?

Answer 8

the difference in competition between the last two bidders
large difference means winning firm makes above normal profit leading to higher welfare loss

Question 9

What is second-price and first-price sealed-bid auction?

Answer 9

Second-price = the second lowest bid price is set as regulated price
First-price = the lowest price is set as the regulated price

Question 10

Show the proportional franchise fee on a graph

Answer 10

check ppt 23