A fantastic article highlighting how deregulation has led to increased market concentration in the retail and food manufacturing sectors in the US and pretty much around the world. It can be argued that monopsony power can increase econonic welfare through reduced prices for the consumer and higher profits for the monopsonist, but at what expense? Depressed wages of the workers in the supply chain and possible reduced quality of products as suppliers attempt to cut costs.
Should government intervene and regulate the market to protect smaller businesses either competing or supplying the monopolist/monopsonist? Is it in the interests of countries like India to let the likes or Walmart and Tesco have free reign?
A good opportunity to develop your chains of analysis and evaluation points.
Breaking up Walmart?
The recent drop in oil prices lends itself to fascinating analysis. OPEC members are finding it difficult to agree on a strategy to increase price and are more inclined to ‘cheat’ and sell more for less to protect revenues and market share. High expenditure projects in Venezuela and some Middle Eastern countries have placed greater emphasis on generating revenues to balance the books and, with the falling price of oil, they are perilously close to fiscal deficits. As an aside one of the articles below questions the motives for such spending and thus begs the question as to what may occur when such spending ceases?
The increase in US shale oil appears to exacerbate the situation further as supply is outstripping demand and on the face of it would signal the beginning of the end of OPEC. Combined with the latest UN backed report stating that the use of fossil fuels should be fazed out by the end of this century if irreversible damage to the planet is to be avoided, countries like Kuwait need to restructure their economies sooner rather than later.
Great opportunity for development of chains of analysis and evaluation with diagrams.
A World Without OPEC?
Fossil fuels to go!
Jean Tirole became the second Frenchman to receive a Nobel Prize this year, winning the Economic Sciences award for his research into curtailing the power of oligopolies.
Jean Tirole Awarded Nobel Prize in Economic Science – Video
Traditional economic theory does not deal with the case of the oligopoly, i.e. many markets dominated by a few firms that all influence prices, volumes and quality, instead it presupposes a single monopoly or what is known as perfect competition. Also, the regulatory authority lacks information about the firms’ costs and the quality of the goods and services they deliver. thus providing regulated firms with a natural advantage. Tirole has researched into the means of dealing with these issues regarding this market system.
Read/Skim through this summary of Tirole’s work and then read FT’s Jean Tirole: 5 things to know about the Nobel Prize winner’s work… Maybe try and answer some of the questions yourself before reading the answers…
What were Mr Tirole’s most important contributions?
What were his crucial findings on regulating oligopolies?
What about competition policy?
Within what context has Mr Tirole won the prize?
For prices to fall significantly output must be such as to achieve economies of scale and in highly competitive markets this is often seen as a barrier to entry. The UK energy market has seen an increase of competition over the last fifteen years, but as the most recent report and video below highlight 95% of UK households are supplied by six producers. The concern is that the ‘big six’ are playing less than fairly. Inertia exists within the market resulting in less and less consumers switching energy suppliers and this can be attributed to asymmetrical information and collusion. Solutions range from breaking up the ‘big six’ to introducing price controls but with demand forever increasing where will the large amounts of finance come from to invest into producing such an important commodity?
the big six competition and energy
It is not a course for debate that markets will not clear but rather how best to facilitate this clearing. It is erroneous to conclude that all demand-side enthusiasts are against all forms of supply-side policies and vice versa. In fact there is a consensus today that supply-side policies indeed increase the LRAS, however, it is in the choice of policy that the disagreements can be found. What do you favour; the policy based on free market and incentives such as lower taxes and privatisation or the interventionist type of policy such as government funding of education and re-training centres? You know the drill – pen and paper at the ready and start your engines!
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