Privatisation: Effects of privatisation on competition

Overview

Recall questions on The effects of privatisation on competition, efficiency, prices and the whole economy.

What you need to know

Answer each one before you reveal it.

Questions from this subtopic

Each one with the model answer underneath.

1. 1

   When might privatisation result in higher prices?

   Model answer

   If private monopoly power emerges, the firm may exploit its market position to raise prices.

2. 2

   What are the potential economy-wide efficiency benefits of privatisation?

   Model answer

   Improvements in both allocative efficiency and productive efficiency across the economy.

3. 3

   What negative impacts on the wider economy might privatisation cause?

   Model answer

   Possible job losses and reduced service provision in unprofitable areas.

4. 4

   Why might natural monopoly characteristics support the case for renationalisation?

   Model answer

   In natural monopolies, competition is inefficient as a single provider can achieve lower average costs than multiple firms.

5. 5

   How does the need for universal provision of essential services support renationalisation?

   Model answer

   Private firms may not serve unprofitable areas, so state ownership ensures essential services are available to all.

6. 6

   What argument for renationalisation arises when privatisation fails to deliver expected benefits?

   Model answer

   If private ownership does not improve efficiency, prices, or service quality as anticipated, returning to public ownership may be justified.

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