2. Policies Toward Monopolies and Oligopolies Privatization and Deregulation

Policies Toward Monopolies and Oligopolies, Privatization and Deregulation  J O Y C E I . A Z A U L A III-BSA

Monopoly “Single seller” Market characterized by 

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" single seller o# a well$de%ned product #or which there are no good substitutes, and 'igh barriers to the entry o# any other %r(s into the (arket #or that product!

Oligopoly “)ew sellers” Market characterized by 

! &!

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" s(all nu(ber o# rival %r(s *nterdependence a(ong the sellers because each is large relative to the size o# the (arket! Substantial econo(ies o# scale, and 'igh entry barriers to the (arket!

*nterdependence a(ong Oligopolistic )ir(s Sellers in an oligopolistic industry is s(all, the supply decisions o# one %r( will signi%cantly in-uence the de(and, price, and pro%t o# rivals! This adds to the co(ple.ity o# the %r(/s decision (aking!

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Substantial 0cono(ies o# Scale *n an oligopolistic industry, large$scale production is generally re1uired to achieve (ini(u( per$unit cost! 0cono(ies o# scale are present, so a s(all nu(ber o# large scale %r(s can produce enough o# the product to (eet the entire (arket de(and!

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 The products o# sellers in an oligopolistic industry (ay be either si(ilar or di2erentiated!

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Price and Output 3nder Oligopoly "n oligopolist, unlike a (onopolist, cannot deter(ine the product price that will deliver (a.i(u( pro%t si(ply by esti(ating its own costs and the e.isting (arket de(and!

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Ob4ectives o# Disinvest(ent5Privatization  The (a4or ob4ectives o# the disinvest(ent5privatization can be su((arized as #ollows6 ! 7evenue collection &! *(prove(ent in e8ciency +! Market discipline ! 7esources (obilization 9! Direct participation o# public :! 0ncourage e(ployee ownership ;! 7eduction o# bureaucratic control

"rgu(ents in )avor o# Disinvest(ent5Privatization Process

!  The basic proble( with PS0s is neither the

e1uality o# assets nor the skilled (anpower, but the overall decision (aking syste(!  These enterprises would realize true potential only when they are privatized! &!  The disinvest(ent and privatization process

could bring in better corporate governance, transparency, corporate responsibility, e.posure to co(petitive #orces, i(prove(ent in work environ(ent and so #orth!

"rgu(ents "gainst Disinvest(ent5Privatization Process

! Selling o# pro%t (aking and dividend paying

PS0 would result in loss o# regular source o# inco(e to the govern(ent! &!  There would be chances o# “asset stripping”

by the strategic partner! +!  The govern(ent/s policy o# disinvest(ent

includes the disposal o# both pro%t (aking, as well as potentially viable PS0s!