Category: Economics: Ch 14

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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.
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Money out of the windows? Microsoft is fined

The EU has imposed a record £680m fine on Microsoft for imposing unreasonable prices on their rivals for access to the Windows code that they required to be able to build complementary software. The record fine is a drop in the ocean for Microsoft, representing just two weeks cash flow, but they hope that this marks an end to the dispute with the EU. They argue that new working practices will help improve interoperability and that they have already begun to offer better access to code for their competitors.

Microsoft hit by 899m euro fine for failure to comply with EU ruling Times Online (28/2/08)
EU fines Microsoft record £680m ‘to close dark chapter’ in fight against monopoly Guardian (27/2/08)
The EU’s frustration with Microsoft Guardian (27/2/08)
Ten years of legal wrangling between Microsoft and EU Guardian (27/2/08)
Pity the big, bad wolf Guardian (27/2/08)

Questions

1. Explain why the EU Competition Commissioner has ruled that Microsoft has behaved anti-competitively.
2. Describe the role of the EU’s Competition Commissioner in improving the competition in markets.
3. Examine other options available to the EU’s Competition Commissioner to improve the competitive situation in European markets.
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Between a rock and a hard place?

The Chancellor Alistair Darling announced in February that Northern Rock – the beleaguered bank – was to be temporarily nationalised. The government had been unable to agree terms with prospective buyers and so decided that temporary nationalisation was the best way to proceed. The move has met with sharp criticism from shareholders and many commentators, but was supported by the Liberal Democrats who had argued from the outset that this was the best solution to the crisis.

Northern Rock shareholders will argue that nationalisation is theft Times Online (20/2/08)
Reaction to Northern Rock nationalisation Guardian (18/2/08)
‘Our shares are worthless’ say the Rock’s furious investors Times Online(18/2/08)
Northern Rock reclassified as public company Guardian (7/2/08)
Northern Rock staff warned of job cuts Guardian (7/2/08)
Q&A: Nationalised Northern Rock – what next? BBC News Online (18/2/08)
Northern Rock crisis (Special Report) BBC News Online

Video


Northern Rock nationalisation BBC News Online (February 2008)

Questions

1. Explain what is meant by nationalisation.
2. Examine the advantages and disadvantages of privatisation. Why was privatisation introduced as a strategy in the 1980s?
3. Discuss the advantages and disadvantages of temporarily nationalising Northern Rock.