Summary and perspectives:
Chapter 13 discusses topics that are considered supplementary to the coverage of other topics discussed prior. These include topics such as Limit Pricing to prevent entry, Predatory Pricing to lessen competition, Raising Rivals’ Cost to lessen competition, Price discrimination a strategic tool and many others. Apart from being supplementary topics, the topics aim at giving practical adjustments to market failure at points that the others have failed. However, these advanced topics are faced with limitations that can only be achieved in mature markets.
For instance, limit pricing cannot be perfect to a point of eliminating incomplete information, reputation effects and many others. Similarly, predatory pricing is very costly on the predator than on the prey. One point of concern that must be taken is that all these strategies involve trade-off when they are implemented. Therefore, as a manger, the best option would be to way off the cost of implementation against the opportunity cost of each strategy. The strategy, which will bear the lowest opportunity cost and implementation cost, will be adopted.
Chapter 14 discusses the Government role in the market in correcting market failures. Market failures are the situations in which natural market forces cannot rectify market imbalances and retain equilibrium. Such are caused by economic factors like marker powers enjoyed by the producers, externalities, public goods and incomplete information. This chapter hence creates areas of interest upon which it concerns understanding how the government posses ability to regulate market operations by providing policies and as well prove incentives at the same time to participants in the market to increase on their levels of production.
The first concept of interest is the manner to which the government manages to eliminate market failures and impartialities. This doubles to be my point of keenness since it has always raised arguments due to misunderstanding of the concept of government’s role in the market. As a manager, I would wish to sub-divide government involvement in the market into regulatory mandate of the government and government participation in the market as a buyer or a seller. In United States, for example, the regulatory mandate of the government involves formulation of regulations and policies that guide the market such as the anti-trust legislation, price legislation to guide the buyers against exploitation, insider-trading restrictions and many others. This role apparently holds the government as a market referee.
The second role of the government involves government participation in the market as a buyer or a seller. The government engages in the market as a buyer through provision of public goods and to some extent, the government acts as a seller where government charges services they offer such as private security to individuals. The matter of concern is which probable way the government acts best in controlling market failures. The common method that always used by the government is the regulatory involvement. However, I think it would important to first consider the impact of each involvement before making a decision. The involvement that shall give the optimal economic advantage in the market shall be used. However, for a case view, I may pick on government engagement as a buyers and a seller since it increases production and employment of factors of production.
Who, What, When, Where, Why and How
With regard to government’s role in market operation and advanced strategies of curbing market failures, the 5W’s analysis can be done as:
Who represents the government, businesses, public and non-governmental organizations that run the decisions pertaining government involvements in the market and market failure rectification. This analysis gives the forerunners of the policies and strategies to be implemented.
What shows the target or benefit of the organization that is aimed as well as the matter that might be a mess. This gives the reason of involvement of government and other organizations into the market operations to bring normalcy where natural forces have failed. Such will include market failures, equilibrium market and many others.
When give the period of period to which the tools are targeted to be used. It answers the question, when are these tools in used? Alternatively, what time will they be used? It will describe the time at which government involvement will be useful to the market and when the advanced tools of market rectification will be implemented to curb market failure.
Where describes the place of use for the tools. This is rather straight forward being the place at which the government is targeting to use its regulations and policies to rectify the market failure. It can also refer to the failed market to which the advanced tools and government involvement will be used.
Why describes the underlying reason that requires used of government involvement to rectify the market. It explains the reason why government involvement and application of advanced tools need to be used, stating the cause or the need.
How answers the question, how the policy or strategy will be used in the market? This explains the manner and process that give chronological order to which the implementation of the government policies and advanced policies will be. However, Government expenditure involvement will give a quantitative analysis while policy regulatory approach of government involvement will give a qualitative analysis.
