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Chapter 4 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.
• • • • • 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 • Natural monopoly – Large capital outlay – Examples: provision of water, electricity, rail & road transport, postal services • • • • • • Increasing returns to scale Privatisation Regulatory measures Regulation Efficiency gains Regulated privatisation • Monopolistic competition – Firms produce close substitutes and each firm has some control over price • Oligopoly – Only a few firms produce a homogeneous product and each one has considerable control over price • 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 • • • Highly concentrated industry Correlation between the degree of concentration and profitability of industries Power of highly concentrated industries • • • Indirect government intervention Restrictive practices Abuse of a dominant position • • National Economic Development and Labour Council (NEDLAC) Competition Act – – – – Competition Commission Rationale for the policy Objective of the policy Focus of the policy • Efficiency hypothesis – Harold Demsetz • Contestable industries and markets – Potential vs actual competition – Global competition ... ‘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. .. a dominant position • • National Economic Development and Labour Council (NEDLAC) Competition Act – – – – Competition Commission Rationale for the policy Objective of the policy Focus of the... hypothesis – Harold Demsetz • Contestable industries and markets – Potential vs actual competition – Global competition