GOVERNMENT POLICY

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GOVERNMENT POLICY
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• CHAPTER 9
• Outline
• Government policy toward
• Perfect competition
• Monopolistic competition
• Oligopoly
• Monopoly
• Competition Act

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• DEFINITION
• Laissez-Faire
• Leave it alone
• No government intervention
• Assumes free competitive environment

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• People of the same trade seldom meet together,
  even for merriment and diversion, but the
  conversation ends in a conspiracy against the
  public, or in some contrivance to raise prices.
• Adam Smith, The Wealth of Nations (1776)
• Source Canadian Microeconomics Problems and
  Policies, Brian Lyons

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• CHAPTER 9
• Government Regulation
• restrict and regulate firms with market
  power
• support and assist small or new
  firms industries with excessive competition

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• 1. Perfect Competition
• CONCERN
• Excessive competition affects long-term
  viability
• POLICY
• Support prices and/or incomes
• PRICE SUPPORTS purchase unsold product
• ACREAGE RESTRICTIONS paid not to produce
• DIRECT PAYMENTS price below certain level
• MARKETING BOARDS control price production

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• 2. Monopolistic Competition
• CONCERN
• Mostly small businesses play a vital role in job
  creation.
• POLICY
• Support small business, especially startups
• Financial assistance, counseling, training,
  marketing

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CHAPTER 9Group Activity

• Describe 3 types of government programs that are
  helpful to small business.
• What is the opportunity cost of these programs?
• What are the benefits to Canadians that offset
  the opportunity cost?

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CHAPTER 9Group Activity

• Govt programs helpful to small business
• financing (loan guarantees, BDC)
• training, mentoring (SEA, CSBC)
• marketing (EDC, trade missions)
• Opportunity cost government spending on
  education, health, etc.
• Offset by
• economic benefits (jobs, economic growth,
  standard of living)

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• 3. Oligopoly
• CONCERN
• Canadian industries have high degree of
  concentration
• Globally, Canadian companies relatively small

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CHAPTER 9 GOVERNMENT POLICYBig Business Dilemma

• Firms that dominateCanadian market
• Can be small relativeto the U.S. market

• Restrict growth and power to protect Canadians?
• OR
• Encourage firms to merge, grow, and be
  competitive internationally?

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• 3. Oligopoly
• CONCERN
• Canadian industries have high degree of
  concentration
• Globally, Canadian companies relatively small
• POLICY Competition Act
• Discourage actions that lessen competition
• Allow actions that increase efficiency, improve
  international competitiveness

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• CHAPTER 9
• Competition Act (1986)
• Civil rather than criminal
• easier to prosecute
• Actions reviewed by Competition Bureau
• Disputes resolved by Competition Tribunal

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• CHAPTER 9
• Competition Act (1986)
• Disallowed if lessen competition
  substantially
• Allowed if
• increase efficiency
• improve international competitiveness

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• CHAPTER 9
• Competition Act
• CRIMINAL OFFENCES
• Price-fixing, bid-rigging, etc.
• False advertising

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• CHAPTER 9
• Competition Act
• CIVIL OFFENCES
• Actions to limit competition
• Abuse of dominant market position
• Refusal to deal
• Some mergers

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• CHAPTER 9
• Competition Act
• POSSIBLE OFFENCES
• Resale price maintenance
• Tied selling
• Predatory pricing

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CHAPTER 9Group Activity

• The Organization of Petroleum Exporting Countries
  (OPEC) is headquartered in Vienna, Austria and
  falls outside the scope of Canadian and US
  competition law.
• OPEC controls about 40 of world oil production,
  and 75 of known crude oil reserves. OPEC
  regularly sets production quotas aimed at
  increasing world oil prices.
• If Canadas competition law was extended to OPEC,
  would it be in violation of the law? Why or why
  not?
• What do you think would happen to oil prices and
  supply if OPEC had to operate under Canadas
  competition laws?

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CHAPTER 9Group Activity

• If Canadas competition law was extended to OPEC,
  would it be in violation of the law? Why or why
  not?Agreeing to limit supply in order to
  increase prices is price fixing, which is a
  criminal offence under Canadas Competition Act.
• What do you think would happen to oil prices and
  supply if OPEC operated under Canadas
  competition laws?If OPEC had to behave
  competitively, there would be no quotas and
  supply would increase. This would cause oil
  prices to decrease.

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• 4. Monopoly
• CONCERN
• Tendency to produce less, charge higher prices.
• POLICY Protect consumers from high prices
• Nationalize the company, run on non-profit basis
• Regulate the rates (prices)
• Privatize and open up to competition

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• DEFINITION
• Natural Monopoly
• industry in which monopoly is most logical
  form of organization
• large capital outlays ? high fixed costs

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• CHAPTER 9
• Crown Corporations
• EXAMPLES
• Canada Post
• CBC
• Manitoba Hydro
• Atomic Energy of Canada

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• CHAPTER 9
• Crown Corporations
• STUDIES SHOW
• Higher operating costs than comparable private
  companies
• Larger than efficient labour force
• Above market wages

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• CHAPTER 9
• Crown Corporations
• TREND
• Since 1980s - privatization
• About a dozen crown corps including
• Petro Canada
• Air Canada
• Manitoba Telephone Systems

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CHAPTER 9Group Activity

• MICROSOFT Monopoly or Free Enterprise?

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CHAPTER 9Homework

• READ
• Chapter 9
• DO
• Study Guide Questions