Transcript Aucun titre de diapositive

Economics for Managers
by
Dr. William Hua WANG
Associate Professor, China Area Manager
Euromed Management Ecole de Marseille
[email protected]
IV How governments
influence the economy?
Summary
IV How governments influence the economy?
4.1 Externalities – “it is not your business”?
4.2 Government’s regulation towards industry and
firms – antitrust vs. build the giants
4.3 Government’s role towards poverty and
inequality – efficiency vs. equality
What’s wrong?
4.1 Externalities – “it is not your Business”?
1. Externalities in our daily lives
2. Negative externalities – eg. pollution
3. Positive externalities – eg. education
Source: Bade & Parkin, 2004, Foundations of Microeconomics,
Pearson Addison Wesley.
1
Externalities in our daily lives
An externality is a cost or a benefit that arises from:
Production that falls on someone other than the producer
Consumption that falls on someone other than the consumer
Negative externality
A production or consumption activity that creates an
external cost.
Positive externality
A production or consumption activity that creates an
external benefit.
1
Externalities in our daily lives
Four types of externalities
Negative production externalities
Pollution is the major example of this type of externality.
Others are noise and congestion
Positive production externalities
Example: Orchards provide positive production externalities to honey
producers, who in turn provide positive production externalities to orchards.
Negative consumption externalities
Smoking tobacco in a confined space
Noisy parties
Positive consumption externalities
A flu vaccination
Restoration of an historic building
Education and research
Externalities: Getting the Prices Wrong
Externalities and Inefficiency
Negative externalities 
Marginal social cost > marginal private cost
Too much is produced
Positive externalities 
Marginal social cost < marginal private cost
Too little output is produced
Marginal social cost = Marginal private cost + Incidental cost
2
Negative Externalities - Pollution
Production and Pollution:
How Much?
When an industry is
unregulated, the amount
of pollution it creates
depends on the market
equilibrium price and
quantity of the good
produced.
If the industry creates
external costs, the
market equilibrium is
inefficient. Too much of
the good is produced.
The efficient quantity of
production and pollution
Marginal
External cost
Marginal
private cost
2
Negative Externalities - Pollution
Government Actions in the Face of External
Costs
The three main methods that governments can
use to achieve a more efficient allocation of
resources in the presence of external costs are:
Emission charges
Marketable permits
Taxes
3
Positive Externalities
Private Benefits and Social Benefits
Marginal private benefit
The benefit of an additional unit of a good or
service that the consumer of that good or service
receives.
Marginal external benefit
The benefit of an additional unit of a good or
service that people other than the consumer of
the good or service enjoy.
3
Positive Externalities
Marginal social benefit
The marginal benefit enjoyed by society—by the
consumers of a good or service and by everyone
else who benefits from it. It is the sum of marginal
private benefit and marginal external benefit.
MSB = MB + Marginal external benefit
• What are the beneficial externalities around you?
• How to stimulate the real estate in the Zhangjiang
(Pudong) area through the provision of beneficial
externalities?
• Why the real estate price is so high in Huacao
County?
• Who are benefiting from the artifical beach in
Fengxian distric?
3
Positive Externalities
Government Actions In the Face of External
Benefits
Four devices that governments can use to achieve a
more efficient allocation of resources in the presence
of external benefits:
Public provision
Private subsidies
Vouchers
Patents and copyrights
IV How governments
influence the economy?
Summary
IV How governments influence the economy?
4.1 Externalities – “it is not your business”?
4.2 Government’s regulation towards industry and
firms – antitrust vs. build the giants
4.3 Government’s role towards poverty and
inequality – efficiency vs. equality
4.2 Government’s regulation towards industry
and firms – antitrust vs. build the giants
1. Regulation vs. deregulation
2. Types of regulation
3. The Pros and Cons of “Bigness”
4. Antitrust law
background
case Microsoft
mergers and competition
1
Regulation vs. Deregulation
Regulation
Rules administered by a government agency to
influence economic activity by determining
prices, product standards and types, and the
conditions under which new firms can enter an
industry.
Deregulation
is the process of removing restrictions on prices,
product standards, and entry conditions.
2
Types of regulation
Types of government regulation of industry
Limiting market power
• Monopoly
Marginal cost pricing rule
Average cost pricing rule
Price Cap Regulation
• Oligopoly Regulation
Promoting consumer and worker protection and safety
3
The Pros and Cons of “Bigness”
Bigness in industry may benefit the
general public:
Economies of large size: where small-scale
operation is inefficient
Required scale for innovation
4
Antitrust law
The body of law that regulates and prohibits
certain kinds of market behavior, such as
monopoly and monopolistic practices.
In USA:
The first antitrust law, the Sherman Act,
passed in 1890.
The Clayton Act of 1914 supplemented the
Sherman Act.
4
Antitrust law
Antitrust Policy Debates
Price fixing is illegal and uncontroversial.
Some other practices generate debate. Three of
them are:
Resale price maintenance
Tying arrangements
Predatory pricing
4
Antitrust law
Antitrust Showcase:
Against Microsoft
4
Antitrust law
Merger Rules
The Department of Justice uses guidelines to
determine which mergers it will examine and possibly
block in the bases of the Herfindahl-Hirschman index
(HHI).
An index between 1,000 and 1,800 indicates a moderately
concentrated market, and a merger that would increase the
index by 100 points is challenged by the Department of
Justice.
4
Antitrust law
An index above 1,800 indicates a concentrated market
and a merger that would increase the index by 50 points
is challenged.
Figure on the next slide summarizes these
guidelines and shows how its was applied to block
some mergers of well known brand names during the
1980s.
4
Antitrust law
Concentration
Ratios and H-H Indexes
4
Antitrust law – Merge Rules
Mergers and Competition
Are Mergers Anti-Competitive?
Do Mergers Improve Performance?
Use of Antitrust Laws to prevent competition
Danone in China – big appitite
1987 Guangzhou Danone Yoghourt
1996 Danone- Wahana (beverages, food, quick frozen food, health food Water)
1996 Acquisition of Wuhan Dongxi Beer, 54.2% share
2000 Acquisition of Robust, (bottled water and dairy-based drinks), 92% share. (Robust
is the biggest competitor of Wahaha).
2000 Acquistion of Guangming Milk, 5%, dairy product,
2004 Increase share to 9.7%, the third largest shareholder.
2005 Increase additional 1.85%.
2004 Acquisition of Meilin Zhengguanghe, 50%, bottled water
2006 Acquisition of China Huiyuan Juice Group, the N°1 of fruit juice, become the 2
largest shareholder
2007 Priority of purchase during the IPO.
2006 Acquisition of Mengniu, 49% of share, dairy product
nd
IV How governments
influence the economy?
Summary
IV How governments influence the economy?
4.1 Externalities – “it is not your business”?
4.2 Government’s regulation towards industry and
firms – antitrust vs. build the giants
4.3 Government’s role towards poverty and
inequality – efficiency vs. equality
4.3 Government’s role towards poverty
and inequality – efficiency vs. equality
1.
2.
3.
4.
5.
The Facts: Poverty
The Facts: Inequality
The Economic Theory of Discrimination
The Optimal Amount of Inequality
The Trade-Off Between Equality and
Efficiency
6. Policies to Combat Poverty and inequality
2
The Facts: Inequality
Depicting Income Distributions: The Lorenz
Curve
Lorenz curve = a graphical illustration of the extent
of inequality in a country
If income were distributed equally, the Lorenz curve
would be a straight line.
The United States has more income inequality than
most other industrialized countries.
2
The Facts: Inequality
Copyright © 2003 South-Western/Thomson Learning. All rights reserved.
2
The Facts: Inequality
2
The Facts: Inequality
Who are the Rich and the Poor?
The lowest-income household in the United States today is
likely to be a black woman over 65 years of age, who lives alone
somewhere in the South and has fewer than nine years of
elementary school education.
The highest-income household in the United States today is
likely to be a college-educated white married couple between 45
and 54 years of age living together with two children somewhere
in the West.
5
Between Equality and Efficiency
The total amount of income in society is not
independent of how we try to distribute it.
Policy measures can be enacted to increase
equality, but usually at a price in terms of total output
or efficiency.
In terms of efficiency, there are better and worse
ways to pursue equality.
The redistribution of income creates a big tradeoff
between equity and efficiency that arises because
redistribution decreases the total size of the
economic pie to be shared.
6
Policies to Combat Poverty and Inequality
Education as a Way Out
advertised as principal way out of poverty
however, poor, especially inner city, schools
children ill-equipped to learn
schools ill-equipped to teach
dropout rates remain high
education not effective way to lift adults out of
poverty; effects delayed for at least generation
6
Policies to Combat Poverty and Inequality
Three main ways in which governments in the
United States redistribute income are:
Income taxes
A progressive tax, A regressive tax, A proportional tax
Income maintenance programs
Social security programs, Unemployment
compensation, Welfare programs
Subsidized services
Education, Social Security Programs,
Unemployment, Compensation, Welfare Programs
6
Policies to Combat Poverty and Inequality
The Scale of Income Redistribution
Market income is the income that a household earns in factor
markets before tax and excluding transfers from the
government.
Money income is market income plus money benefits paid by
the government.
We can measure the scale of income redistribution by
calculating the percentage of market income paid in taxes
minus the percentage received in benefits at each income
level.