Matakuliah
Tahun
Versi
: J0434 / Ekonomi Managerial
: 01 September 2005
: revisi
Pertemuan < 23 >
Government Regulation
Chapter 17

Learning Outcomes
Pada akhir pertemuan ini, diharapkan mahasiswa akan mampu : menganalisis mengenai regulasi pemerintah, bentuk organisasi dan rancangan mekanisme
(C4)

Outline Materi
• Government Regulation
• Market Performance, Market Conduct, and
Market Structure
• Condition of Entry
• Market Concentration

Government Regulation
• Corporations are legal entities which exist only because governments allow them to exist.
• Governments impose many restrictions on firms: mergers, patents, licensing, or subsidies.
• The stated intention of governments is set restrictions that promote social welfare, but they sometimes benefit particular groups or individuals.

2002South-Western Publishing

Market Performance, Market Conduct, and Market Structure
Market basic supply and demand conditions
Feedback
Effects
MARKET STRUCTURE
MARKET CONDUCT
MARKET PERFORMANCE

Good Market Performance
Depends on:
• Efficient resource allocation
• Technologically progressive
• Promote full employment
• Equitable distribution of income

Market Conduct
• Pricing behavior
• Product policy
• Sales promotion and advertising
• R&D and innovation strategies
• Legal tactics with regard to entry

Market Structure
• Seller and buyer concentration in a market. With one buyer we have monopsony power of buyers.
• Product differentiation . A market structure of highly differentiated products may be monopolistically competitive.
• Conditions surrounding entry conditions .
The ease of entry and exit are market structure determinants.

Condition of Entry open
2. Control over input supplies.
4. Scale Economies.
6. Technological barriers. closed

Contestable Markets
• Economists have thought that structure influences conduct and performance in an industry .
– This is the central paradigm in the economic field known as industrial organization.
• The idea of contestable markets is applied in markets with scale economies.
– A perfectly contestable market has many
"potential entrants" with the same cost functions as the incumbent firms.
– They enter or not depending on the incumbent's price, which causes the incumbent firms to set prices equal to marginal costs

Market Concentration
• The market or industry concentration ratio sum the market shares of the largest 4, 8, 20, 50 firms.
– A four-firm concentration ratio (4CR) of 80 says that the top for firms comprise 80% of the sales in the industry.
• Herfindahl-Hirschman Index (HHI) is:
HHI =

S i
2 , which is the sum of the squares of the market shares of all firms in the industry.
• With small market shares, HHI is small. With large market shares, HHI is large.
• If two firms with 50% market shares each HHI = 50 2 +50 2 =
5,000. With 100 firms of 1% each, HHI only 100.

Summary
• Corporations are legal entities which exist only because governments allow them to exist.
• Governments impose many restrictions on firms: mergers, patents, licensing, or subsidies.
• The stated intention of governments is set restrictions that promote social welfare, but they sometimes benefit particular groups or individuals.