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If the government decides to privatise a major public sector industry, what might be an unintended consequence?
Potential monopolistic practices
Reduction in corruption
Enhancement of operational efficiency
Immediate increase in public revenue
Potential monopolistic practices
Privatization refers to the transfer of ownership, property, or business from the government to the private sector. The unintended consequence of creating a monopoly occurs when the privatized entity faces little to no competition, allowing it to exert undue control over market prices and supply.
Privatization refers to the transfer of ownership, property, or business from the government to the private sector. The unintended consequence of creating a monopoly occurs when the privatized entity faces little to no competition, allowing it to exert undue control over market prices and supply.
If a government decides to sell the only water supply company in a region to a private owner without regulation, the company can charge whatever price it wants, because the residents have no other alternative supplier.
M-P-U: Monopoly, Privatization, Unintended
╧А=TRтИТTC тАФ Basic profit maximization formula
MR=MC тАФ Condition for profit maximization in monopoly
In market economics, the transition from state-run to private ownership reduces competitive pressure if barriers to entry remain high. The firm seeks to maximize profit (╧А=Total┬аRevenueтИТTotal┬аCost) by restricting output (Q) to reach the point where marginal revenue equals marginal cost, often leading to prices (P) well above the competitive equilibrium level.
Privatization often improves operational efficiency but risks market failure.
Monopoly power creates deadweight loss in an economy.
Effective regulation is required to prevent anti-competitive behavior.
Natural monopolies are common in sectors like infrastructure and energy.
Increased operational efficiency
Reduction in government fiscal burden
Access to private capital and innovation
Potential for monopolistic abuse
Increase in prices for consumers
Possible reduction in public service accessibility
Telecommunications sector
Energy and power distribution grids
Option B is typically a goal of privatization, not an unintended consequence.
Option C is often a desired outcome, not an unintended one.
Option D is a direct goal of asset divestment, not unintended.
A is correct тАФ Privatization of essential public services can result in the formation of monopolies if the market structure does not support multiple competing firms.
In competitive exams, always distinguish between the 'objectives' of a policy and its 'unintended externalities'.
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