Question

Pengurusan Air Selangor Sdn Bhd (“Air Selangor”) is a state-owned water management company. It was set-up as the special purpose vehicle of the Selangor State Government, to be the single holistic licensee for the provision of water services in Selangor and the Federal Territories of Kuala Lumpur and Putrajaya, following the water services industry restructuring One of the main issues that are always associated with the state government-protected monopolist like Air Selangor is inefficiency. Explain why this is the case (inefficiency) explain clearly and long based on facts about economics for pure monopoly. Give proof for the facts by news about 'Air Selangor"

Answer 1

There are inefficiency's in state government protected monopolists because the price and service which they provide often does not justify as the prices are sometimes too high with respect to the service. Because of this market failure arises as monoplies have market control over the economy, because of which they charge higher price and produce less output, while the price which is charged by the monopoly is greater than the marginal cost of production which leads to inefficiency in the market for such monopolies. As there is no competittion consumers have to avail such services.

As can be seen from the recent available data, customers were charged heavily even when their usage was nil. This led to revision and review of the costs imposed on customers during that period. This is a classic example of inefficiency as customers have proof of usage as they were out of town, and consumers will continue to avail of such services as there is no competition available in the market which leads to such cases of discrepancy. Operational inefficiencies are some of the classic cases of such market failure.

Source: edge markets.