Government Regulation

These are used to:

•  Promote competition.
•  Resolve externalities where market failure exists:
•   Provision of public goods.
•  Taxing demerit goods.
•  Enforce law and order.

 Influence the location of firms:

•   Prevent overcrowding in cities.
•  Prevent regions from being neglected.

Governments do not desire oligopolistic or monopolistic markets as such markets are uncompetitive when compared with competition based markets. Often, a government will restrict the formation of such markets by:

•  Breaking up larger firms into smaller ones
•  Providing incentive for other firms to set up in the market
• Preventing merges that may prove detrimental to competition

How does the government regulate private enterprises?

•  Investigate existing monopolies and suggesting ways in which competition may be introduced into these monopolist-dominated markets.
• Investigate proposed mergers and prevent such merges from taking place if they are believed to be detrimental to competition.

Influencing the Location of Firms:

Why is this done?

• o Some regions may be economically depressed, usually due to the decline of a traditional industry (this may lead to regional unemployment).
• o Some regions may be overcrowded with too much pollution, traffic congestion, insufficient housing and public services as a result of too many firms choosing to set up in the said regions.

How is this done?

 Give firms incentives to set up in depressed regions:

•   Low loan interest rates.
•   Grants for the construction of infrastructure.
•   Grants for the training of workers.
•   Tax holiday/allowance.
•   Low rent/free premises.
•   By building and improving the infrastructure present in the said depressed region.
•  Persuade firms in congested regions to move to depressed regions (stop granting licenses to operate in a congested region).