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Should governments legislate to prevent monopolies

Monopolies have long been criticized for “miss-allocating” resources as well as affecting general welfare, nevertheless, firms continue their strives in becoming monopolists while governments in many cases tolerate them as oppose to legislate to prevent their emergence. Monopolies have proven to be very disadvantageous to society. Imposing higher prices than competitive markets leads to a decline in overall consumer surplus. The fact that a monopoly has no close substitutes, makes supernormal profits and has merged with the industry, dis-incentivises monopolists to be efficient and may lead to possible diseconomies of scale. [1] In general, monopolies are expected to have negative implications on efficient resource allocation and welfare seeing that the factors that compose a monopoly are assumed to give little way for the contrary (ie: increase social benefits).
This widespread disdain of monopoly power is compared to the ideal nature of a perfectly competitive market. A monopoly’s profit (private benefit) is illustrated on the graph below:
Having no competitors means that a monopolist can set any given price for a good or service, while setting output where Marginal Revenue is equal to Marginal Cost ( making profits of BCDE). [2] By contrast, were the market competitive, prices would be lower and output higher. This in turn diminishes consumer surplus and leads to a deadweight welfare loss. In a monopoly the prices are higher than the marginal cost, P > MC, which can be described as allocatively inefficient, whereas in a competitive market prices would be decreased and consumer welfare would increase. Moreover, an example of a monopoly being productively inefficient is shown when it is not producing at the lowest point of the AC (Average Cost) curve [3] . Stating that it has the potential of producing the given output at a lower cost. The AC curve is commonly higher than it should be in a monopoly firm due to the absence of competition, decreasing incentives to cut production costs.
Be this as it may, governments tend to tolerate monopolies rather than preventing them. Disassembling a monopoly takes a lot of effort and in many cases the industry has grown so dependent on the monopoly that its dissolution would lead to economic turmoil. Governments therefore tend to impose regulations on monopolies. For example, “Ofwat is the economic regulator of the water and sewerage sectors in England and Wales” [4] and state that they “make sure that the companies provide household and business customers with a good quality service and value for money.” [5] In some cases monopolies prove to be relatively efficient. It is common for a monopoly to experience economies of scale, this is to say that a firm obtains cost advantages due to expansion. As the magnitude of output increases, a firm’s average cost per unit decreases. Finally, monopolistic firms aren’t necessarily counterproductive for society. A dominant example being Google. Google is arguably the largest monopoly in terms of search engines, however, this isn’t to say that it is an inefficient firm seeing that innovations are presented constantly, (Google books, Google mail, Google maps, etc.).
As previously stated, a monopoly charges a price higher than the marginal cost. This higher price is undesirable from the consumer’s viewpoint. The higher price however provides profit to the monopoly making it highly desirable by the producer’s viewpoint. Taking total welfare as the sum of consumer and producer surplus, it is arguable to say that a monopoly can be desirable from society as a whole, seeing that the increase in producer surplus increases total surplus. The respective surpluses can be measured in the following way:
consumer surplus = consumer’s willingness to pay – cost of given good
producer surplus = revenue of good – cost of production of good
The monopolist is taken as the single producer of the market. In a competitive market, the equilibrium point of supply and demand is seen as a natural and favourable outcome. Total surplus is at its maximum level because of the efficient allocation of resources set by the “invisible hand of the market”. Overall economic welfare fails to reach its highest level seeing that a monopoly allocates resources differently from a competitive market.
Consider a monopoly in which the profits earned by the firm and consumers’ benefit is cared for. In order for both the producer and consumer to maximise profits, this monopoly tries to maximise total surplus.
Total surplus in this market would be maximised at the level of output where the demand and marginal cost curves meet. Below that level the value of the good to the consumer trumps the marginal cost of producing the good, so by increasing output total surplus would also increase. Conversely, over this level, the value of the good to the consumer is less than its marginal cost, so by decreasing output total surplus again increases.
This “ideal” monopoly could achieve the an equilibrium by charging a price relative to the social optimum level of output. Namely, where the demand and marginal cost curves meet. Much like a competitive market, the “ideal” monopoly would charge a price equal to the marginal cost of the good or service.
Evaluating the implications of a monopoly on welfare includes a comparison of the level of output set by a typical monopolist, to the level of output set by the “ideal” monopolist. The typical monopolist produces at the output where the marginal revenue and marginal cost curves meet. Whereas the “ideal” monopolist sets the output relative to where the demand and marginal cost curves intersect. This example is illustrated by the diagram overleaf:
The fact that a monopoly charges a good at a higher price than its marginal cost, leaves consumers with little incentive to purchase it at more than it is valued, rendering the quantity a monopoly chooses to sell below the socially efficient level. The shaded area between the demand and marginal cost curve is known as the deadweight loss.
It is at this point that monopolies take the blame for making profit by exploiting consumers’ willingness to pay. It is one thing to blame a monopoly for making more money and another to argue that they have an effect on welfare. A monopoly profit-maximising firm does not necessarily conjure any issues for society. Welfare in an monopolistic market involves the consumer and the producer. Every extra pound spend on a good goes to the producer, increasing his surplus but leaving the total surplus unaffected. The “losers” are the consumers for purchasing an overpriced good. Presenting an argument as to how consumers were wronged in this situation becomes more of a moral matter, however in plain monetary terms, a monopoly doesn’t affect welfare in this sense. The problem welfare faces is not in terms of the pricing but of output. A monopolist produces a quantity below the surplus-maximising level. The deadweigt loss is a measure of much the market diminishes as a result. The problem arises from the inefficiently low quantity produced.
As proven above, monopolies fail to allocate resources efficiently. They produce less than the social optimum level of output which in turn leads to higher prices. Governments may intervene in one of four ways to deal with a monopoly. Making a monopolistic market more competitive, regulation, publicising private firms or doing nothing.
In order to make a market more competitive, governments take legal measures in the attempt to prohibit company mergers that coincide with public well-being. Governments also tend to regulate monopolist behaviour. This course of action is more dominant when firms monopolise utilities like water gas or electricity. Firms are no more price setters, government agencies impose prices. It is suggested that prices should equal the monopoly’s marginal cost of producing a good. If this were the case, consumers would consume producer surplus and resources would be allocated efficiently. Nevertheless, seeing that natural monopolies have a declining average total cost, the marginal cost is less than the average total cost. If prices were equal to MC, they would also be lower than the firm’s ATC resulting to the firm losing money. The firm would then exit the industry instead of charging such a low price.
Another governmental policy includes nationalising former privatised firms. Government intervention in this case may prove to be counterproductive in the sense that a privatised firm would be incentivised by the increased market share to minimise costs of production. If firm managers are not reaching expectations concerning maintaining lower costs they are replaced in order to avoid any inefficiencies. This behaviour is popular throughout the European Union seeing that numerous countries have privatised most utility companies.
Every governmental policy has repercussions so governments are generally advised not to take any action.
In conclusion, although monopolies tend to employ profit maximising strategies by charging higher prices, this doesn’t necessarily affect social welfare directly, despite the fact that a fall in total surplus may be traced back to the elevated prices. It has more to do with the quantity supplied, or lack of, seeing that a monopoly will produce at a lower quantity than is socially optimum. In this sense, governments should intervene to prevent monopolies from exploiting consumers’ willingness to pay and their inability to provide a good or service by some other means. On the other hand however, by privatising valuable resources such as coal or water or gas or the environment in general, firms would be forced to maintain a certain level of efficiency while keeping costs to a minimum. Nevertheless by regulating monopolies and preserving competitive markets governments are able to ensure economic stability.

A Historical Review Of Malaysian Higher Education

The higher education system in Malaysia has since the independence in 1957 been generally treated as a unique global public good due to the inherent positive externalities that are associated in its provision (Sirat et al., 2010; Sirat, 2005). Under this arrangement, the government of Malaysia has had great monopoly over the provisions of higher education system until the early 1990s when a policy shift to the private higher education was established and encouraged in order to actualize the expected growth in higher education system (Malek, 2000). This was primarily designed to meet the growing needs for higher education system among the increasing number of both the domestic and global population that needed university education. The difficulties in attaining the desired provisions of higher education system between 1957 and 1990 were as a result of low budgetary constraints to higher education compared to the allocations that goes into primary schooling (World Bank Report, 2000). Whereas, research have shown that the excess demand for the higher education system in Malaysia was being supplied by the overseas higher institutions of learning, majorly by the United Kingdom, United States of America and Australia (Ishak et al., 2008, Sivalingam, 2006). Given the high cost of studying abroad, the Malaysian government came up with scholarships to support the domestic needs of its citizens that want to study abroad.
Some critical arguments that were raised then are why the government did preferred overseas higher education to licensing private universities in Malaysia. Meanwhile, other factors eventually lead to the need for a change in policy such as the external shock that affected the Malaysia economy between 1985 and 1986, the Reagan/Thatcher doctrine during the early 1980s; Malaysia growth in multinational enterprises which created the need for university graduates; and the new government policy called “vision 2020”. All these and many more necessitated the need for the introduction of the Private Higher Educational Institutions Act in 1996, which serves as the legal and regulatory framework upon which the privatization of higher educations in Malaysia and the licensing of the establishment of local branches for foreign universities, and local private universities and the university colleges were all based. The acceleration of the education sector was further liberalized after the 1997 financial crisis in East Asia which subsequently led to the sharp devaluation in the value of Malaysian Ringgit, one of the main factors that made foreign education unaffordable for many Malaysians (Sirat et al., 2010).
The aftermath of the 1997 financial crisis led to the loss of comparative advantage by Malaysia in its production of the labor intensive goods, further creating the needs to search for alternative means of production that are more technology intensive oriented in the productions of goods and services that will generate the required growth. In order to effective do this, the government felt the need to expand Malaysia’s higher education sector so as to create the anticipated knowledge economy that will support the productions of technology intensive goods and services (Abu Hasan, 2008).
The Development of Higher Education Provider (HEP) in Malaysia Following the aforementioned historical development of higher education system in Malaysia, this section comprises of the effects of the monopoly that was enjoyed by the government in the provisions of higher education institutions in Malaysia. Existing literatures shows that the first university in Malaysia is the University of Malaya that was established in 1962, five years after Malaysia independence (Sirat et al., 2010). Following this was the establishment of Science University of Malaya, now called Universiti Sains Malaysia (USM), which was set up in 1969. In that same year another proposal meant to set up a private University to be called Merdeka University was subsequently denied permission by the Malaysia government. The continue increase in the market demand for higher education eventual led to the establishment of the third University in 1970 popularly called the National University of Malaysia or Universiti Kebangsaan Malaysia (UKM). The year that follow also saw the establishment of another public university called the Agricultural University of Malaysia or Universiti Pertanian Malaysia (UPM) in the year 1971 and the Universiti Teknologi Malayisia (UTM) also called Technology University of Malaysia in 1972 (Morshidi, 2005).
Each of the above five universities were primarily designed with their individual their specific roles and functions that are meant to explore the opportunities in the economy and proffer alternative solutions to the societal problems (Muhammad et al., 2009). Some argued that the University of Malaya was designed as a colonial vintage that is meant to produce the needed elite for the development of Malaysian economy (Sirat, 2005). Similar to University of Malaya is Universiti Kebangsaan Malaysia, a university that was established to create a unique centre that will serve as the Malay intellectual discourse. Both the Universiti Sains Malaysia and Universiti Teknologi Malaysia were designed to produce future scientists and modern technologists that would supplement the required growth. Evidence has shown that the current trend in the economy has made the Agricultural University of Malaysia to expand its content of graduates beyond the Malaysia’s agricultural revolution. This is because enrollments into the public universities eventually doubled between 1970 and 1980 and still wasn’t sufficient in meeting the required demand for higher institution for Malaysians within the ages of 19-24 years that have been seeking university education abroad.
In order to meet up with the needs for higher education system, the Malaysia government continued with its educational policy of expanding the higher education institutions by increasing its expenditure on university education for local public universities (Islam and Cheng, 2008). However, this continuous expansion was argued not to be sufficient for higher education demand in Malaysia. Evidence in some literatures showed that in 1980 about 19,500 Malaysian university students were studying degrees in foreign country, a figure which was quoted as slightly less than 20,045 students that are studying in the local public universities (Sirat, 2005).
To further bridge this gap, the government embark on expansion of the university education from 1980 to 1990 by setting up International Islamic University (IIU) in the year 1983 and the University Utara Malaysia (UUM) in the year 1984. The government was said to establish IIUM to specialize in generating Islamic degrees, but UUM was to specialize in providing management courses (Sirat, 2005). What actually led to the emergence of the private university was the continuous increase for degree courses which was quoted to have increased almost three times between 1980 and 1990, specifically from 20,045 in 1980 to around 60,000 in 1990. The government justified this expansion on the grounds that there is the need to increase the current higher education in order to be able to increase the needed manpower that is required for economic expansion due to the high inflows in foreign direct investment in Malaysia (Kamogawa, 2003).
After a strong deliberation on the potential growth in the inflows of foreign capital into Malaysia economy by late 1980s and the subsequent demand for highly skilled manpower, the government of Malaysia argued in favor of establishing private institutions of higher learning that will provide basic facilities for the pre-university courses such as certificate and diploma courses, with emphasis on technical subjects (Ahmad et al., 2007). The government believes such expansion in higher education will also assist in reducing the outflow of foreign exchange in Malaysians studying abroad.
Millennium Development Goals in Private Higher Education Institutions Introduction Literatures on higher educations have shown that in a decade ago topics on private or non-government higher education institutions were not globally discussed and yet literatures have indicated that over this period the provision for private higher institutions has increased exponentially in several countries (Lim, 2008). This part of the research provides a brief overview of the private and non governmental higher education institutions till 2009 and equally examines some important themes that relate to the provisioning of private higher education institutions (PHEIs) in the global market. Discussions under this part are not meant to be an in-depth exploration of the topic, nor that is it meant to advocate for private institutions to replace the public education system. It is primarily meant to examine the roles of the private higher education in meeting the need for the required demand for access to qualitative education system.
Some scholars have argued that the successes that have accrued to the education sector through the Millennium Development Goals have led to an unprecedented demand in higher education system (Newman and Couturier, 2002). This is because many governments have heavily invested in early the childhood and the secondary education system, further resulting in high numbers of qualified learners that have caused the current inadequate provisions that are available to meet higher education demands (Aihara, 2009). Literatures have shown that the demand for places in the higher education system far outstrips the supply of the available seats globally (Arokiasamy et la., 2009). Authors such as Abu Bakar et al (2009) have predicted that the demand for the higher education system globally would have expanded from the 97 million students in 2000 to around 262 million students by the year 2025. All these formed the basis the arguments in favor of the private higher institutions whose market has been estimated to have reach US$400 billion in 2006 worldwide and has continue to grow particularly in developing economies (Lim, 2008). Some argued that the above figure may be much more higher because of the difficulty that are inherent in quantifying the investment in infrastructures such as cost of land and constructions and other capital investments that are put in by the private providers of higher education (Erk, 2009). Similarly the Private Higher Education Institutions can work individually or collectively in identifying new skills that are required in regions where there are promising industrial growth such as the information technologies or the engineering. This is because they are more cost efficient than the public higher institutions, given the fact that they are not carrying the same employment and infrastructural constraints as the public sector (Bjarnason et al., 2009).
Criticism against Worldwide Development of Private Higher Education Institutions
Issues of infrastructural constraint that are being faced by the public education system was also argued has leading to some criticisms and arguments against the private education providers that they only offer niche courses that are in greatest demand such as the business courses so that they could charge premiums (Suryadi, 2007). Some even argued on their attitudes towards conducting academic researches, and that lack of such quality should not deem them as an academic institution of higher learning. While there are many available arguments in support of the above criticism, other literatures do show that there are situations where private universities are being established by known individuals and some philanthropic organizations that saw a failing public sector and determined to come in with a strong ideological and financial support that will redress this lack of qualitative education system (Guruz, 2008).
This current study is being conducted at particular time when the world is currently experiencing a global financial crisis, whereas either the depth or the breadth of the crisis are yet to be clear to the stakeholders and thus making it difficult for determining or measuring its impact on education sector. Meanwhile, scholarly arguments have suggests that higher education fares moderately well during economic downturns as this, mainly because people will like to use that opportunity to engage in retraining programs with the general hope of having additional advantage during economy recovery. Private higher education is a good alternative in economic situation such as this, because public government funding is currently inadequate in meeting the expected growth in demand for higher education in all levels, and thus making the non-governmental provisions is rapidly expanding (Arokiasamy et la., 2009). In a recent report by the World Bank in 2009, experts argued that required supports by the government and all other stakeholders ought to be prioritized in crisis times such as we are now (Aihara, 2009). Therefore this current research has provided important guidance to the policymakers on how to measure their business performance index at critical economic downturn that Malaysia and the world at large is currently facing.
Global Growth of Private Higher Education Institutions Existing literatures have established that the Private Higher Education (PHE) has captured huge attention in the education industry given its tremendous growth in size and revenue in recent decades. The continuous growth in PHE has occurred on a global scale to the extent that the previously marginalized countries have mostly attained a sufficient level in PHE in compared to those countries with longer standing in the provision of PHE. Importantly, much of this development in PHE was said to have occurred between the late nineteen and twentieth centuries, creating another dimension to the public sector affairs that was common in the provisioning of higher education in the past. Bigger percentage of this development in the transformations from the small to the large private enrolments of students in PHE was argued to have mostly taken place in the developing and transitional countries (Aihara, 2009). Below is table 1 that aptly depicts private enrolment in some of the developed and developing countries in the world.
Table 1: Private higher education enrolments: Some examples In contrast to the above information in the table, some literatures have established that some developing countries still remain under 10 per cent enrollment and many of them are said to be experiencing more than 60 per cent in PHE enrollments. Meanwhile Guruz (2008) have argued that around 30 per cent in the global higher educations’ enrolment are currently in the private higher education institutions (Guruz, 2008). In that same study Guruz (2008) went further to argued that no existing region in the world do stands out from the current PHE growth. In addition to the information above on the global enrolment PHE is figure 1 below, that summarize Asia’s private enrolment by country between 2001

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