Structure and organisation of private industries (Theme 3)

Question 1

What is regulation?

Answer 1

This is government intervention designed to protect the interests of consumers by promoting competition

Question 2

How do the government regulate privatised industries

Answer 2

They separate infrastructure from supply, the running and maintenance of infrastructure is provided by natural monopolies while the supply is in a competitive market

Question 3

OFCOM (communications)

Answer 3

Broadcasting and publication of content is managed by the office of communication to ensure fair balance and non offensive content is published

Question 4

ORR (Railways)

Answer 4

Network rail are the natural monopoly that maintain the infrastructure of the rail lines and TOC’s (trained operating companies) lease chunks of the rail lines to provide rail services

Question 5

OFGEM (Gas and Electricity)

Answer 5

This is the National grid with suppliers often providing gas and electricity services eg British gas

Question 6

OFWAT (Water)

Answer 6

There are 7-10 regional monopolies that maintain infrastructure and supply water to consumers

Question 7

OFTEL (Office of Telecommunications)

Answer 7

The infrastructure is provided by BT whereas other providers supply services such as EE

Question 8

What is contracting out

Answer 8

This is when public sector services are leased to the private sectors firms who provide the service instead of the government

Question 9

What Is competition tendering?

Answer 9

This is when public sector services are bid on by private sector firms to win the contract

Question 10

Advantages of contracting out

Answer 10

1) Lower cost to taxpayers - private sector firms tend to be more efficient, have higher expertise and provide higher quality of service at lower costs reducing the amount that has to be paid by taxpayers
2) Profit incentive - profit motivation for shareholders and owners means that resources are not wasted so there is higher allocative efficiency in theory

Question 11

Disadvantages of contracting out

Answer 11

1) Corruption and bid rigging - Where private sector firms collude to charge higher prices forcing the government to pay more, they then decide which firm wins the contract
2) Concealment of finances - Bid rigging forces the government costs up which can be funded through borrowing to hide or conceal government finances
3) Safety and quality issues - Profit motive can result in trying to lower costs which can lead to reduced quality of the end product or service

Question 12

PPP - Public Private Partnerships

Answer 12

This a combination of government and private funding to deliver public sector services

Question 13

PFI -Private Finance Initiative

Answer 13

The most common form of PPP where the private sector builds and maintains infrastructure and lease to the government on a long term lease eg hospitals , schools, firestations etc