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Look at different types of market.

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Introduction

Essay - Section B 2 a) A utility is a good that maximises consumer consumption; therefore a utility industry is an industry that maximises consumer consumption by using that good or service provided. This is likely to be a homogenous good, which is provided by a company like BT or POWERGEN, as both these industries are referred to in the question. The telecommunications industry has always been a monopoly, as other companies cannot enter the market, for example, other companies are at an immediate disadvantage because they do not have a telephone line in everyone's house. This is because this is a very expensive initial cost and companies are not usually likely to have the resources to be able to afford something like that. This was an important factor; this is why BT was controlled by the government before privatisation (Thatcher, 1970s), to control the monopoly. This meant that BT had a natural cost advantage over competitors; this also meant that BT was the only firm in its industry (monopoly), which made the company more influential in terms of trading. It would benefit more from trading, because BT could benefit massively from economics of scale, and also other efficient economies. This brings me to my next point, contestable markets. A contestable market is a monopoly (or as defined by the UK fair trading commission, a company with over 25% of the market share) that is not necessarily disadvantageous for the consumer. ...read more.

Middle

This would mean that the market would be efficient, and that the consumer would benefit from the use of OFTEL in the telecommunications industry. Examples of benefits are cheaper phone calls, and line charging prices as well as the introduction through development of new technologies such as ADSL and video on demand, which still have to be fully implemented. OFWAT, if it had been liberated by the regulations, would mainly be cheaper to the consumer, as gas and electricity are homogenous goods, which cannot be improved or changed (theoretically). The single difference would be price to the consumer, and maybe also the level of service in fixing leaks, and also help lines. Without the use of the regulatory agencies, OFTEL and OFWAT, monopolies would follow the normal equilibrium of monopoly: As you would expect from a monopoly, there is a large profit excess from (P1-P2), this is because there is no other competition 'sharing' in the profits. Arguments FOR abolishing agencies such as OFTEL and OFGAS, to start these companies are going to be expensive to the government, (educating and employing people to carry out the stressful work of making companies efficient). This in turn makes the companies involved less efficient, because it causes them time and money, to make sure that this agency is 'pleased', as they have to make sure all information about the company goes through this agency - which can be regarded as extra costs. ...read more.

Conclusion

This is the only guarantee that will benefit consumers, but even these firms still require 'guidance', as there will still only be a few industries in the market. As I said in my last paragraph, illuminating industries like OFGAS, OFGEN, and OFTEL is absurd. I feel that the continued regulation of these markets is essential, to maintain consumer interests. Monopolies are inefficient, natural monopolies, such as those controlled by these agencies are even less efficient if left on their own as they have barriers to entry. Such industries need to be policed, and make sure competitiveness is maintained within the industry as much as possible. To conclude my summary, basically regulation should continue in the natural monopolistic markets, to maintain competitiveness and to ultimately benefit the consumer. There is a chance, even though I feel it to be pretty small - that unregulated markets may lead to increased efficiency through the single, major factor of economies of scale. An alternative viewpoint would be that markets should be left alone, and not interfered in by the government; this theory is supported by the classical economists of pre-Keynesian times. This would mean that the market would be left under market mechanism, and therefore demand would exceed price, and prices would rise, until another firm entered the market, where prices would fall. The more firms entering, the more efficient that industry would be, and eventually the economy as a whole if market equilibrium was the answer. ...read more.

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