Chương 18 Chính sách công nghiệp và chính sách cạnh tranh docx

Industrial policy andCompetition Policy – aims to enhance economic efficiency by promoting or safeguarding competition between firms.. Industrial policy Inventions and the patent system

Chapter 18

Industrial policy and

competition policy

David Begg, Stanley Fischer and Rudiger Dornbusch, Economics,

6th Edition, McGraw-Hill, 2000 Power Point presentation by Peter Smith

Industrial policy and

Competition Policy

– aims to enhance economic efficiency by promoting or safeguarding competition between firms.

 Industrial policy

– aims to offset externalities that affect

production decisions by firms

Industrial policy

 Inventions and the patent system

– designed to provide a sufficient incentive for invention without suppressing

competition for ever

 Research and Development (R&D)

– the social return on risky projects may

exceed the private return

 Dynamic change

– coping with sunset and sunrise industries

Consumer surplus

D

Q

P

Quantity

ric e

and suppose price is at P with quantity demanded being Q.

P represents the value placed

on the good by the marginal consumer

so D can be seen to

represent marginal social

benefit

With all consumers paying the same price P for the good, the

triangle APC represents consumer surplus – benefit received

by consumers in excess of the amount they need to pay.

A

C

Producer surplus

D

LAC = LMC

Quantity

ri ce

Q

P

Producer surplus is the excess of total revenue over total costs

– as shown by the rectangle.

Consumer surplus is the area of the big green triangle.

The social cost of monopoly:

comparing perfect competition and monopoly

D

LAC = LMC

Qc

Pc

Quantity

ri ce

For simplicity, suppose as industry with horizontal long-run average and marginal costs.

Under perfect competition, long-run equilibrium would

be with industry output

Q c selling at price P c

and the red triangle shows the welfare loss – the

The monopoly receives producer surplus (profit)

of the blue rectangle.

Consumer surplus is now the smaller green triangle.

The social cost of monopoly:

comparing perfect competition and monopoly

D

LAC = LMC

Pc

ri ce

MR

Pm

If taken over by a monopolist, profit maximization is at the lower output

Q m and higher price P m

must be balanced against the gains from efficiency

(the pink rectangle).

In comparing the two situations, the loss of consumer

surplus under monopoly (the red triangle)

Perfect competition and monopoly under differing cost conditions

D

Quantity

ri ce Suppose that monopoly

enjoys lower cost conditions than under perfect competition

Qc

Pc LRSSpc Under perfect competition

equilibrium is at P c , Q c LAC = LMC

MR

Pm

Qm

Compared with P m , Q m under monopoly

Counting the cost of monopoly

 The size of the social cost of monopoly is difficult to evaluate

– in part it depends upon the elasticity of demand

– which influences the size of the ‘red triangle’ of welfare loss

 Furthermore, firms may use up resources to defend their monopoly position

– implying that costs are higher than under perfect

competition

– there may also be X-inefficiency under monopoly

 if incentives to be cost-efficient are lower in the absence of competition.

Competition law in the UK

 The Competition Commission (formerly the

Monopolies and Mergers Commission) is the

body responsible for administering

competition policy in the UK.

 A company can be referred to the Commission

if it supplies more than 25% of the total market for a good

– or where there is collusion between firms

 The Commission is charged to investigate

whether or not the monopoly acts against the public interest.

Mergers and acquisitions

 Firms can grow through merger and

acquisition (M&A) activity

production in the same industry

production in the same industry

– economies of scale

– competition on a global scale

 The late 1990s saw record levels of

M&A activity.