Category: Economics: Ch 14

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Keeping it in the family – nationalisation

Nationalisation has been coming back into fashion lately with the UK bank bail-outs. In other parts of the world though, it has been back in fashion for longer and the articles below look at two recent cases in Latin America: the nationalisation of the Chaco energy company and the renationalisation of Spanish-owned airline, Aerolineas Argentinas (AA).

Bolivia nationalises energy firm BBC News Online (24/1/09)
Argentina renationalises airline BBC News Online (18/12/08)

Questions

  1. Explain what is meant by nationalisation.
  2. Discuss the arguments for and against nationalising (a) an airline and (b) an energy firm.
  3. Assess why nationalisation has become more prominent in the media recently than privatisation.
  4. Discuss the arguments for and against privatisation.
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Glass prices – not so transparent?

The European Commission has fined four glass companies, including the UK firm Pilkington, for operating a price-fixing cartel in the market for car glass. As part of the cartel, managers in the firms, met in secret to fix prices and carve up the market between them. The largest single fine was handed down to the firm Saint-Gobain, the owner of the UK plasterboard group BPB. Saint-Gobain was fined 896 million euros. The four firms between them controlled around 90% of the market for car glass at the time the cartel operated.

Glassmakers fined record €1.4bn for price-fixing by European regulators Guardian (13/11/08)
Europe fines glassmakers record €1.4bn Times Online (12/11/08)

Questions

  1. Explain what is meant by a cartel and how it is able to increase the profits of its members.
  2. What market conditions are most likely to lead to the formation of a cartel?
  3. Compare and contrast the role of the UK Competition Commission and the European Commission in maintaining competitive markets.
  4. Evaluate two policies that can be used by governments to prevent price-fixing.
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Nationalisation, but not as we know it?

Nationalisation has been seen by most people as something very much of the past. However, the financial crisis has changed all that and the recent nationalisation of banks in Iceland and part-nationalisation of UK banks has brought the concept under the economic microscope once again.

Iceland struggles for control as it nationalises Kaupthing Times Online (10/10/08)
Brown and Darling have bitten the bullet – and set the world an example Guardian (9/10/08)
G7 ministers forced to think the unthinkable Guardian (11/10/08)

Questions

1. Define the term ‘nationalsation’.
2. Assess why the Icelandic government felt that the nationalisation of Kaupthing was the best solution to their financial situation.
3. Discuss the extent to which other countries may be obliged to nationalise their banks.
4. Discuss whether the current tranche of nationalisation is likely to be extended beyond the finance industry.
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A powerful oligopoly?

Energywatch, an industry watchdog, has argued in a recent report to MPs that Britain’s electricity and gas supply industry is a “comfortable oligopoly” that feels little need to innovate or compete. They have called for the sector to be subject to a Competition Commission investigation.

Power companies are ripping off consumers Times Online (21/5/08)
Age of cheap power is over Times Online (21/5/08)
Call to investigate energy ‘oligopolies’ Guardian (21/5/08)

Questions

1. Explain the main characteristics of an oligopolistic industry.
2. What aspects of the electricity and gas supply market would the Competition Commission consider if asked to investigate the industry?
3. Assess the extent to which the electricity supply industry exhibits oligopolist collusion.
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Airport fees flying higher

The Civil Aviation Authority (CAA) – the regulatory body for Britain’s airports – has allowed the main airport operator BAA to increase substantially the landing charges it levies on airlines. The airlines have reacted angrily and argued that the higher charges will simply be passed on to passengers in the form of higher fares.

Q&A: Airport landing fees BBC News Online (11/3/08)
BAA to raise airport landing fees BBC News Online (11/3/08)
Fares will rise as fees cap is lifted Guardian (cartoon) (12/3/08)
Fares will rise as fees cap is lifted, airlines warn Guardian (12/3/08)

Video

BAA to raise landing fees BBC News Online

Questions

1. Explain the regulatory system in operation for the control of landing fees at UK airports .
2. Explain why the CAA has increased the landing fees that BAA can charge for planes landing at UK airports.
3. Is raising landing fees an efficient method of internalising the externalities associated with air travel?
4. Evaluate the extent to which the higher landing fees will be passed on to airline passengers. Use diagrams as appropriate. You may also like to consider the relevance of the price elasticity of demand for air travel in determining the extent to which the higher landing fees can be passed on by the airlines.