COMPETITION AND POLICIES TOWARD

MONOPOLIES AND OLIGOPOLIES, PRIVATIZATION

AND DEREGULATION

REPORTED BY:
JANELYN B. DULANAS
COMPETITION
- a dynamic process means, rivalry or competitiveness between or
among parties (for example, producers or input suppliers) to deliver a
better deal to buyers in terms of quality, price and product information.

PRICE TAKERS
- in a price-taker market, the firms all produce identical products and
each seller is small relative to the total market.
- cannot sell any of their output at a higher price.
- there is no pricing decision to be made.

Examples: eggs, rice or regular unleaded gasoline

PRICE SEARCHERS
- These are firms that face a downward-sloping demand for their product.

PURE COMPETITION
- refers to a market structure characterized by a large number of small firms
producing an identical product in an industry that permits complete freedom
of entry and exit. These markets are increasingly reffered to as “ price-takers
market”.
SIGNIFICANCE OF COMPETITION
• competition motivates businesses to produce efficiently, cater to the
views of consumers and search for innovative improvements.

• the price-taker model highlights the importance of the compepetitive

process. Competition puts pressure on producers to operate efficiently
and use resources wisely.

• a firm in competitive markets has a strong incentive to discover and

produce goods and services that consumer's value highly relative to cost.

• if firms are going to be successful in competitive markets, they must also

be innovative and forward looking.
• in competitive markets, business firms must serve the interests of
consumers.

INCOME INEQUALITY AND POVERTY

- Money income is only one component of economic well being.
Factors such as leisure, noncash transfer benefits, the monetary
advantages and disadvantages of a job, and the expected stability of
future income also affect people's economic welfare. It is also easy to
measure and is widely used as a yardstick of econmic well-being and
inequality prevailing in society.
MARKET ENTRY BARRIERS
1. Economies of Scale
- economies of scale and high fixed costs, are not significant barrier to entry.
When the assets needed to enter the market can be leased, transferred to
another location, or resold later without a major loss of value.

2. Control Over an Essential Resource

- control over a resource essential to produce a product may also insulate a
firm from direct competitors.

- resource monopolies are seldom complete because over time supplies in

other parts of the world may be discovered which could make a particular
country or firm loss its advantage.
 - profit opportunities provide challengers with an incentive to search for
mineral deposits, new technologies, and substitute resources.

- barrier to entry like the one haas just been described is often temporary but
it exists that may be high enough to limit the market to only one seller.

3. Goverment Licensing and Other Legal Barriers to

entry
- licensing is a requirement that one obtains permission from the government
in order to perform certain business activities or work in various occupations.

- these license cost little and are designed to ensure certain minimum
standards. Often, however, they are costly and a major deterrent to the entry
of potential rivals.
PATENTS
- Most countries have patent laws to give investors a property right to their
inventions. A firm that develops a new drug can use patent protection to
restrain production by others for 17 years from the time the patent is issued.
Although consumers will pay higher prices than if open competition were
permitted, that may benefit from additional investment in research and more
rapid development of new product by firms seeking a market with patent
protection. Without the profit potential accompanying patents, the incentive
to engage in research and new products would be slowed.
MONOPOLY MODEL
- Derived from two greek words meaning “single seller”. A single seller of a
well-defined product for which there are no good substitutes and high barriers
to the entry of any other firms into the market for that product

OLIGOPOLY MARKET
- Oligopoly means “few sellers”. It is a market situation in which a small number
of sellers constitute the entire industry. It is competition among the few.

FINANCIAL MANAGEMENT IN PUBLIC SECTOR

• A public sector enterprise (PSE) is a business undertaking owned, controlled
and managed by the state on behalf of and for the benefit of the public at
large.
• The basic objective of public enterprising is to achieve the strong industrial
base and to provide infrastructure for the development of the economy of
the country.
INEFFECTIVENESS, INEFFICIENCY AND CORRUPTION
• THE CAUSES OF THESE INEFFECTIVENESS, INEFFICIENCY AND CORRUPTION
COULD BE THE TRACED TO ANY ONE OR COMBINATION OF THE FF:
1. Government is not truly profit-oriented. Its emphasis is on employment
generation and protection which could lead to overstaffing, indiscipline and
low productivity.
2. Political interference is very high in PSEs.
3. Short-tenure managers appointed by government to manage these units
only take steps for short-term gains ignoring long-term implication.
4. Less flexibility is prevalent in PSEs. Business needs quick decision and action
and this is not possible in a bureaucratic organization.
5. Constant fear of COA queries and parliamentary questions increase the
tendency of “passing the buck” and delaying decisions.
WAYS TO REFORM PSES
1. De-licensing or deregulation

2. Reducing the buget collection

3. Reforming the decision making system

4. Disinvestment or Privatization

OBJECTIVES OF DISINVESTMENT/PRIVATIZATION
1. Revenue collection

2. Improvement in efficiency

3. Market discipline

4. Resources mobilization
5. Direct participation of public

6. Encourage employee ownership

7. Reduction of bureaucratic control

ARGUMENTS IN FAVOR OF
DISINVESTMENT/PRIVATIZATION PROCESS
1. The basic problem with PSEs is neitherthe equality of assets nor the skilled
manpower, but the overall decision making system. These enterprises would
realize true potential only when they are privatized.

2. The disinvestment and privatization process would bring in better corporate

governance,transparency, corporate responsibility, exposure to competitive
forces, improvement in work environment and so forth.
3. The market participation in capital of PSEs through stock exchanges would
enable the market to discover the latent worth of PSEs. The market
capitalization also increases.

4. The loss making PSEs can be successfully revived by asking the strategic
partner to infuse fresh capital and by exercising excellent management control
over sick PSEs.

ARGUMENTS AGAINST DISINVESTMENT/PRIVATIZATION

PROCESS
1. Selling of profit making and dividend paying PSE would result in loss of
regular source of income to the government
2. There would be chances of ”asset stripping” by the strategic partner.
Most of the PSEs have valuable assets in the shape of plant, machinery,
land and buildings. It may be possible that the strategic partner may
very well dipose of these assets, make money and leaving the PSEs as a
sick enterprise.

3. The government's policy of disinvestment includes the disposal of both

profit making, as well as potentially viable PSEs.