Despite all this, monopolies can have some advantages, a monopoly may be able to achieve substantial economies of scale this will be because of bigger plant “e.g. a monopoly water company in UK would eliminate the needs for several sets of rival water mains under each street”.
The government will try limit pricing and this happens when barriers to entry of new firms are not all total and in another case it’s seen if a monopolist is making big amount of supernormal profits.
When this happens it makes the industry limit their size of their profit trying not to attract new entrants.
Methods of Government Intervention that might be used to achieve the set objective…
There are several methods of the policies that the government can use, there is at one end, market can be replaced by providing goods, and services it self and in the other hand they can persuade producers, consumers or workers to act differently.
Government trying to control the pricing range to achieve their objectives policies. The United Kingdom have a more of an open view than the USA of the benefits of promoting competition, the government all they want is to be making large profits from their interference with organisations.
Price controls can be applied so it can stop monopoly or oligopoly from charging excessive prices. Price controls could also be used with the objectives of redistributing incomes.
Privatised industries, if left free to operate in the market, will have monopoly power and the answer to the problem for the government is to regulate their behaviour, “so that they produce at the socially optimum price and output”.
The government will try and prevent the abuse of monopoly power; they will also try to ensure that all mergers are in the public interests and also ensure that firms charge a price equal to the marginal cost.
There is the first-best solution, this the solution of correcting a certain market distortion by marketing sure that the whole economy operates through ways of social efficiency. Taxes and subsidies are one means of correcting market distortion. In the first-best world, externalities can be corrected by imposing rates.
The second-best solution also comes into the public attention this is a solution to a certain market distortion that knows distortions in another place and also wants to make the whole distortionary problems to a minimum.
In UK e.g. town planning and weights and measures regulations are done by the central government and also delegated by the local authorities.
The government could prohibit firms from engaging in various types of oligopolies collusion, or some monopolistic practices. For example, the manufactures could be prevented from fixing the prices that retailers must change, or from refusing to supply certain goods.
There are five major privatised organisations in the UK which are electricity, gas, water, telecommunications and railways.
They all have their own price regulations, they each have were authorities are being delegated down in order to change the pricing plans.
The thing that makes the government act on industries to regulate their price and income its because of a belief that they have about monopoly, they say it may lead to inefficient use of resources, and this is mostly by the urge to promote a more fair/legal income distribution. There are more examples of the government intervention e.g. the nuclear; climate friendly energy. “The UK Government is committed to a 20% reduction in CO2 emissions by 2010, relative to 1990 levels, to tackle the causes of climate change”. The British nuclear industry welcomes the Government’s commitment. They government are trying 2 limit the amount of C02 because it’s getting too much.
If the government wishes to tackle the problem of excessive monopoly profits, it can impose a lump-sum tax on the monopolist. The government can not just concentrate on one method of intervention to regulate monopolies, there are so many ways in which they can go around in achieving what they have set out 2 achieve.
I think using and trying different method definitely helped the governments’ objectives, as I have mentioned most of the methods above they do not always work, some of them might take weeks to have an impact in other cases they might take years. They are all part of future plans; they can not be achieved in one night it takes time.
The organisations can not keep away from the government what ever they try to do the government will still get something out of them even if they do not manage to regulate the things they want to regulate some profits will be made through either income tax or indirect tax.
Reference:
Hand out on privatisation and regulations.
Oxford Economic dictionary: John black
Economics explained
Internet: google search on government intervention
