Outline possible approaches to the problem of monopoly.

Possible approaches that could be used to deal with the problems posed by monopoly include:

- compulsory breaking up of all monopolies (monopoly busting)
- use of price controls to restrict monopoly abuse
- taxing monopoly profits
- rate of return regulation
- nationalising or taking into public ownership previously privately-owned monopolies
- privatising previously state-owned monopolies
- removing barriers to entry and regulations that previously protected monopolies

Not all these possible approaches have been used by the UK competition policy authorities and some of the policies — notably nationalisation and privatisation — are the opposites of each other and could hardly be used at the same time. Questions in the Unit 3 examination paper may well ask for analysis and evaluation of policies the authorities might use.

It is extremely unlikely, however, that questions will ask for a history of UK policy or for a description of the roles of the Competition Commission and the OFT. Although the roles of the competition authorities have been described here, this should be treated as useful background knowledge, rather than as information for students to learn in depth.

Dynamic efficiency.

Dynamic efficiency occurs over time, as technology provides the chance to produce more and/or better products that improve welfare.

Improvements in dynamic efficiency result from the introduction of better methods of producing existing products and also from developing and marketing completely new products. In both cases, invention, innovation and research and development (R & D) improve dynamic efficiency.