HAT Manifesto Part 1/3 - Rubric Cube - 241201 revision

 Mostly summarized from Gregory Mankiw’s Principles of Economics, 5^th Ed.

PART 5 Firm Behavior and the Organization of Industry

Chapter 15 of 36 Monopoly

Section 30 of 32

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Government policymakers can respond to the problem of monopoly in four ways

·1· try to make monopolized industries more competitive

·2· regulate behavior of the monopolies

·3· turn some private monopolies into public enterprises

·4· do nothing at all

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·3· Turn some private monopolies into public enterprises

Rather than regulating a natural monopoly run by a private firm, the government can run the monopoly itself.

This is common in many European countries, where the government owns and operates utility companies such as water, electric, and telephone.

In the United States first-class mail delivery is considered a natural monopoly and the federal government runs the Postal Service as an independent agency.

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With natural monopolies economists generally prefer private to public ownership.

Private owners of a monopoly firm have an incentive to minimize costs as long as they gain part of the benefit as increased profit.

They will fire the firm’s managers if they do a bad job of keeping costs down.

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With public government ownership of a monopoly firm

If the government bureaucrats who run the firm do a bad job of controlling costs they usually keep their jobs and the losers are the customers and taxpayers.

The bureaucrats and employees of the firm become special-interest groups that attempt to block cost-reducing reforms.

The voting booth is less reliable than the profit motive as a way of ensuring natural monopoly firms control costs and are well run.

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·4· Do nothing at all

Each of the above 1~3 policies aimed at remedying the inefficiencies of monopoly pricing has drawbacks and limitations.

Some economists argue it is often best for the government not to act on the problem of monopoly.

Here is the assessment of economist George Stigler, winner of the Nobel Prize for his work in industrial organization:

“A competitive enterprise economy will produce the largest possible income from a given stock of resources.

No real economy meets exact competitive conditions and all economies will fall short of the ideal economy, the difference results from market failure.

In my view, the degree of market failure in the American economy is much smaller than the political failure arising from the imperfections of economic policies found in political systems.”

Determining the proper role of the government in the economy requires judgments about politics as well as economics.