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imperfect competition (on the social cost of a statutory monopoly…
imperfect competition
on the social cost of a statutory monopoly
equilibrium F is at MC = MR and the market produces a smaller quantity 0Qm and a higher price.
MRPTxy > Px/Py
indicating that the 1st and the 3rd (top level condition) for pareto optimum is violated.
PG 68/69
PmGEPc the loss in consumer surplus part of which is a srate transfer from consumers to monopoly
GEF being the deadweight loss
HeQcQmis to be transferred to the other sectors of the economy, there is often lags.
allocative inefficiency
arising from a monopoly on one of to sectors. produce to little of one good is produces
X inefficiency
monopolists do little to utilize their existing resources efficiently.
deregulation
the decreasing cost case: regulatory options
natural monopoly
cost high to get into the market,
the minimum average cost of production is at a level of out put sufficient enough to supply the whole market, only one firm can operate efficiently
increasing returns to scale
the long term AC diminishes.
MC curve will lie below the AC curve
PG 70
the profit maximizing position of a monopoly leads to to little being produced and to higher price, leading to
welfare loss
what should be done.
to rectify the monopoly must be bought by the gov and run at a loss
and cover the resultant loss with a unit subsidy
ES
government owned monopolies are also less X efficient than private monopolies and have less incentive to innovate and implement cost saving innovations
privatization
this usually goods hand in hand with regulation.
regulated privatization
may result in job losses, money get the already rich
market power and competition policy
monopolistic completion
when many firms produce close substitutes and each firm has some control over price.
oligopoly
only a few firms produce a homogeneous product and has considerable control over the price.
Qpc>Qic>Qm
Ppc<Pic<Pm
structure-conduct-performance (SCP) hypothesis
the structure of the industry determines its conduct and performance.
competition policy
competition policy in south africa
abuse
to promote completion where feasible
South African markets are dominated by a few
not just market share but the abuse of it
is completion policy necessary
efficiency hypothesis
(no)
contestable market
(no)