Question

government owned monopolies are less X_Efficient than private monopolie and have

Answer 1

It has been observed that non-public monopolies run on the idea of rate of returns on private capital. According to Healey(1993) “where a ceiling on the rate of return on capital exists, the incentive for management to control costs is reduced, and an incentive exists to extend the capital base through more investment—the so-called Avert-Johnson effect.”

This effect compromises the consumer welfare and undermines the enterprise objectives of serving the public. Privatization and the promotion of private monopolies therefore are costly as they need regulatory bodies to monitor them. Yet despite this fact policy makers are of the opinion that to increase firms ‘efficiency, privatization is the most feasible process. As a result private monopoly develops. Horton and Ridge (1972) denotes about private monopoly as this

“Private monopoly is additionally more subject to erosion than governmental monopoly. Competition will make itself felt in one way or another whenever the monopoly price is far above the competitive price. There cent stock-market hearings offer a dramatic example. The commission charged on large purchases and sales is clearly exorbitant. As a result, firms executing such orders have been able to get the business only by agreeing to “give up” part, often a large part, of their commissions to other firms designated by the purchasers – clearly an indirect sort of price-cutting.

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