Case Study Questions
1. Suppose that liberalization occurs as in Figure 14.1 and the result is a pro-competitive
effect, but instead of merging or restructuring, all firms are bought by their national
governments to allow the firms to continue operating.
What will be the impact of this on prices and government revenues (use 14.7)? Now that the
governments are the owners, will they have an incentive to continue with liberalization? Can
you imagine why this might favour firms located in nations with big, rich governments?
2. Using a diagram similar to Figure 14.2, show what the welfare effects would be following a
switch from normal competition to perfect collusion.
Be sure to address the change in consumer surplus and pure profits.