Market Intervention

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Market Intervention
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Learning outcomes

• By studying this section students will be able
  to
• evaluate the benefits of the free market
• evaluate the problems of the free market
• understand the methods of market intervention
• justify market intervention
• understand recent developments in public sector
  provision

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The free market

• The benefits of free markets
• the market knows best.
• economic efficiency
• Having maximum output for minimum input. Profit
  maximization.
• allocative efficiency
• Trade-off between producing one product, instead
  of another? what product is best for firms?

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The free market

• The benefits of free markets
• consumer sovereignty
• Demand of consumers leads more production in some
  products.
• economic growth
• Firms compete?productivity?better use of
  resources?economic growth

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The free market

• Criticisms of the market solution
• the inappropriateness of the perfect market
  assumption
• externalities
• Overproduced? Pollutions
• Violent Games? crime
• public goods
• Traffic lights//signposts for tourists
• realities of economic growth
• Ups and downs are normal in economic life cycle//
  
• No sustainability
• equity
• Having gap between the rich and the poor
• Those can access to resources( education) and
  those who cant

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Market intervention

• central planning
• Production decisions by government
  (China/Singapore)
• control of monopolies and mergers
• Control mergers,
• because mergers ? more monopoly

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List of airline mergers and acquisitions

• Air West
• 1968 - Pacific Air Lines (originally Southwest
  Airways), Bonanza Air Lines, and West Coast
  Airlines merged to form Air West
• 1970 - Howard Hughes purchased Air West and
  renamed it Hughes Airwest
• American Airlines
• 1987 - American Airlines purchased Air California
• 2001 - American Airlines purchased TWA

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List of airline mergers and acquisitions

• Delta Air Lines
• 1924 - Started as Huff Daland Dusters
• 1928 - Huff Daland Dusters was purchased by C.E.
  Woolman and renamed Delta Air Service after the
  Mississippi Delta
• 1953 - Purchased the Chicago and Southern Air
  Lines, and flew under the name Delta CS for the
  next two years
• 1972 - Purchased Northeast Airlines
• 1987 - Merged with Western Airlines
• 1991 - Purchase of Pan Am's European routes, and
  acquired Pan Am's shuttle, forming what is today
  Delta Shuttle
• 1991 - Purchased Eastern Airlines
• 1996 - Delta Express began service, ended
  November 2003
• 2003 - Song began service, ended May 2006
• 2008 - Completed merger with Northwest Airlines.
  Became the world's largest carrier by passenger
  traffic (to keep Delta name)

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List of airline mergers and acquisitions

• Northwest Airlines
• 1916 - Founded by Col. Lewis Patenaude, under the
  name Northwest Airways
• 1927 - Began flying passengers
• 1949 - With its new routes to the far east,
  re-branded itself as Northwest Orient Airlines
• 1986 - Purchased Republic Airlines, and dropped
  the word Orient from its brand name
• 2008 - Merged with Delta to form the world's
  largest carrier. Currently a subsidiary of Delta
  Air Lines, Inc. Combined carrier will use the
  Delta name.

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Market intervention

• laws, planning controls and permits
• Some goods and services may be banned.
• Additive drugs// prostitutions
• taxes and subsidies
• Taxes on luxurious products
• Subsidies on price of rice
• public provision
• Public ownerships of corporations
• Electricity Generating Authority of Thailand
• Metropolitan Waterworks Authority

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Monopolies

• Are these passengers being ripped off?
• Probably
• Why?
• Many ferries operate in near-monopoly conditions.
  So they may pay high prices for tickets and
  certainly will for on-board catering

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Problems of market intervention

• Resource allocation in disequilibrium
• Ineffective resource allocation by governments
• Can be heavily allocated in some areas (e.g. More
  in big cities)
• Public ownership efficiency and culture
• Leading to waste and poor quality of service
  (mostly no competition)
• Side-effects of subsidies and taxes
• Higher taxes? reducing incentives in economy

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Problems of market intervention

• Loss of consumer sovereignty
• Power of consumers in spending is reduced by
  income taxes.
• Measurement of external (or social)costs and
  benefits
• Difficult to measure social cost
• Government interference and changing objectives
• Inconsistence in government policy.
• No more Kitchen of the world policy

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Public or Private?

• What are the pros and cons of public ownership of
  railways?

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Trends in public sector provision

• Less central planning
• Even government needs to be more flexible and
  competitive.
• More privatization
• Should we privatize energy organizations?
• Performance targets and indicators
• Need to have clear and measurable targets and
  indicators.

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• The End