Question

Suppose that a computer software company controls the operating system market. Although the government knows that the price is higher than it would be in the presence of competition, it believes that such profits are crucial to incentivizing innovation in the high-tech industry, a policy goal of the government.
Which of the following policy options might most effectively enable the government to achieve its objectives in this situation?

Do nothing at all.

Regulate the pricing behavior.

Turn the company into a public enterprise.

Use the law to increase competition.

Answer 1

Answer:

Turn the company into a public Enterprise.

Explanation:

Among options, the option to turn the company into a public enterprise is the most viable, thanks to the advantages of Public Enterprises including:

• Charges low prices.

• Provide essential facilities like education, health, free or at reduced prices.

• Ensures efficient control of industry.

• Expert administrative services.

• Money can be made available for R&D

• Private monopoly which would cause high prices is avoided.

• Foreign denominations of the economy are avoided.

In which, “money can be made available for R&D” is critical objective of government.

Answer 2

Answer:

Do nothing at all.

Explanation:

If a computer company controls a sizable share of the operating system market, then consumers may believe that the lack of choice or competition is harmful. Yet the government may not have enough evidence to act against the company or may be led by politicians who believe in limited government interference in the market or may, as in this case, believe that granting a firm significant market power for a time will benefit the economy as a whole. Any of these situations can lead the government to do nothing at all about a monopoly.