In Module 1 we saw that governments often intervene in markets which they consider to be subject to monopoly power. We also saw that governments in modern democratic states are under pressure from interest groups to grant protection from competition. In this module we will investigate the problems associated with two broad areas of competition policy:
Regulation is one of several possible responses to the ‘natural monopoly’ problem. An alternative to regulation is to operate a natural monopoly as a public enterprise, and this option is considered in Module 8. Other relevant matters such as regulating conditions of entry or standards of service will be covered in Module 9: Privatisation and Deregulation.
The aims of this module are:
To outline the traditional arguments against monopoly power.
To explain what is meant by ‘natural monopoly’.
To investigate the way different forms of regulation may be expected to produce different results.
To outline the so-called competitive bidding ‘solution’ to natural monopoly and compare its features with other regulatory systems.
To explain the basic features of policy towards monopolies, mergers, and restrictive practices and to indicate the problems of implementation associated with them.
