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More competition please!

By: Mpiyakhe Dhlamini 2014-08-06 10:14

Competition drives down prices,this is because all other things being equal,price is the only way a business can differentiate itself from its competitors.So,if government legislates a monopoly in a particular industry,especially an industry that people cannot live without;the difference between the price they pay and the price they would pay if competition were allowed is basically a tax.

Price is not the only way that businesses can differentiate themselves,they can also offer a better product or service than their competitors so absence of competition also stifles innovation.What is the cost of a reduced level of innovation in an industry?One obvious answer is that productivity gains are never made and so the monopolistic business does it’s business more inefficiently than would be the case in a competitive environment.

The situation is worsened if the monopoly is owned by a government,governments usually have other considerations apart from maximising profit.So,if the country has an unemployment problem,the state-owned business will be pressured to hire more staff than it can productively use,all of these things have an inflationary effect.

Monopoly,in other words,draws resources from other sectors of the economy(less investment can be made in other sectors,and thus the economy grows less and less jobs are created) to the inefficiently run monopoly company.

If we want to encourage entrepreneurship and create jobs,privatising all government monopolies would be one of the things we would be doing some of the others would include:cutting taxes and deregulating the economy,since we are doing none of these things a rational person must conclude that we do not really want to lift people out of poverty.

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