Industrial organisation

Its important that there are no entry barriers because then prices can be driven down by active competition. When firms fight for survival costs are lowered because firms use new and more efficient technologies. North America's economy grew more quickly than South America's economy because North America used a decentralised market economy and the South used a centralised market economy. Firms have incentives to prevent other firms from entering into markets because this reduces competition and market shares are advantagously proportioned. Water markes in the UK are monopolies because only one company supplies the water to consumers and it would not be possilbe to dig up roads and install more water pipes so only one company supplies the water and dominates the market, monopoly style. A company uses product strategies to maximise profits but with vertical integration there are different types of products in the sense that they are better or worse than each other in terms of computer processing power, as an example. Horizontal integration is where products are not significantly different for example drinks being different colours. If you were comparing markets it would be practical to look at numbers of firms but only in proportion to the size of the firms otherwise it is easy to be misled. There are only a few main supermarkets but they are very big.

Firms are run by employees who do jobs but they only work for wages and so are controlled by incentives. There are share options which are when employees try to increase share prices and if they reach a pre set target they get to purchase shares at the current price in large quantities and keep the profit. it is a monetary incentive because employees respond to incentives but particularly well to monetary incentives. Incentives are called carrots. The office of fair trading regulates competition in the uk. what does the oft do to remedy competition problems? oft can tell the firms off like a headmaster tells of a school pupil and asks them not to do it again. In extreme cases there are jail sentences.

There are many cases for investigation of competition regulation claims but no more than 10% are ever formally completed and I suspect that if more were formally completed it would be more pareto efficient and people would benefit without anyone becoming worse off. Perhaps too much regulation is not a good thing?