Lecture Public economics (5th edition) - Chapter 4: Imperfect competition
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Discuss the social costs of a monopoly and indicate
its relevance for ‘deregulation’
Outline the characteristic features of a natural
monopoly
Discuss the case for and against regulating a natural
monopoly
Explain the meaning of the ‘structure-conductperformance’ (SCP) hypothesis and discuss its
relevance for competition policy in South Africa
Explain Demsetz’s ‘efficiency hypothesis’ and discuss
its relevance for competition policy generally.
X-inefficiency
• Additional cost of a monopoly
• Utilisation of existing resources
• Labour productivity
• Time and effort for research
Technological advancement
• Incentive
• Means
Deregulation
• Removal of barriers to entry.
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Natural monopoly
– Large capital outlay
– Examples: provision of water, electricity, rail & road
transport, postal services
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Increasing returns to scale
Privatisation
Regulatory measures
Regulation
Efficiency gains
Regulated privatisation.
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Monopolistic competition
– Firms produce close substitutes and each firm has some
control over price
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Oligopoly
– Only a few firms produce a homogeneous product and each
one has considerable control over price
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Tendency for:
– Higher equilibrium quantities at lower equilibrium prices
– Lower quantities at higher prices.
The structure of an industry determines the conduct of
its constituent firms, which in turn, determines their
performance.
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Highly concentrated industry
Correlation between the degree of concentration and
profitability of industries
Power of highly concentrated industries.
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Indirect government intervention
Restrictive practices
Abuse of a dominant position.
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National Economic Development and Labour Council
(NEDLAC)
Competition Act
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Competition Commission
Rationale for the policy
Objective of the policy
Focus of the policy.
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Efficiency hypothesis
– Harold Demsetz
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Contestable industries and markets
– Potential vs actual competition
– Global competition.
