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c   


 
 
-Less incentive to be efficient/innovative/produce new products
-More resources to protect market dominance by raising barriers to entry
+More funds for investment and R&D
+Reserves to overcome short term difficulties (eg: stability to employment)

c     
-Higher prices, lower output for domestic consumers
+Financial muscle to compete effectively against multinational firms

    


-Productively inefficient(MCтAC)
+Economies of scale: AC likely lower than most efficient perfectly competitive firms (MC=AC)

     
-Misallocation of resources (PтMC) (Less choice/Lower quality)
+Avoid unnecessary duplication of capital (eg: airport runway / railway track / electricity/water
distribution network)

     
-Wastes resources as profits from one sector is used to finance losses in another
+Increased range of goods (eg: provision of essential loss-making services: rural bus/mail services)

  
  
-Raise producer surplus, reduce consumer surplus/welfare
+Raise firm͛s total revenue(TR) to allow survival of essential services

        


-Complacent monopoly raises entry barriers by limit/predatory pricing
+Supernormal profit acts as incentive for rival firms to breakdown monopolies through creative
destruction by investing in R&D and innovations
  

 : Firms agree to restrict competition between themselves by fixing prices and restricting output
to secure joint profit maximisation.

Price fixing, restrict output (allocating market share)
Limit advertising budget
Share market/technical info
    
Firms have an understanding on pricing and output decisions often through price leadership (eg:
Other firms follow pricing decisions of market leader)
   
Oligopolistic market structure (so few major firms to reach an agreement)
Effective monitoring system to prevent cheating
No potential competition (eg: hit-and-run) /no effective competition
Similar cost structure for similar pricing decisions
Stable, mature industries (eg: steel)
     
Same prices
Raise prices by same amount at the same time
High supernormal profits
High share prices
   
   :
-Competition Commission: -Fines up to 10% of annual revenue/ Imprisonment for directors
-Whistle blowers protected by competition law
-      :
-Cartels tend to breakdown due to cheating
-Independent firms (competition) gain market share at expense of cartel members
-Similar cost structures: firms are innocent, just responding to increases in production costs
-technological change (internet) undermines price/output agreements

-Tacit collusion: - hard to prove


-long investigation means collusion still goes on
-opportunity cost of investigation: funds/time
-Welfare loss depends on magnitude of price fixing
 
+Share R&D costs=wider range of products, higher quality, more choice
+Less wastage on advertising
+Share technical info=improve safety of products/ safety of workers
 
-higher producer surplus, prices
- lower consumer surplus, quality, choice=welfare loss
±    

!"#      
Cut costs:-wage cuts
-staff cuts
-reduce pension benefits
Increase efficiency:
-combine head offices
-rationalise supply chain
- invest in new technology (increase productivity to lower unit costs)
2.Close down/     /services
$"     :
-concentrate on core activities to compete more effectively
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Marketing: Advertising costs shared
Financial: Lower borrowing costs
Managerial: Share head office
Technical: Increased dimensions, indivisibilities, R&D costs
Risk-bearing: Spread risks over wide range of products
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No single firm able to fully exploit benefits of economies of scale due to high fixed costs
High (Minimum Efficient Scale): Large scale production needed to obtain economies of scale
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-Losses from resale of machinery/capital
-Redundancy
-Fines from contractual obligations (if contract broken)
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Def:  
imposed by regulator on firm to prevent abuse of monopoly power 
Lasts for' 

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Firm is allowed to increase prices k% above rate of inflation
#@?
Firm is allowed to increase prices X% below rate of inflation

     6     
+More accurate revenue estimation (price cap =stable, steady revenue)
+Better idea of efficiency improvements needed
+Easier to plan investments
-Technological change/external shocks=difficult to predict appropriate level of profits,
output & funds for investment

= -  


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