TELMEX, World Bank Country Economics Department, June 7 1992, p. 6.
24
Kessler & Alexander (2003).
25
Many academic studies have shown that competition is usually more important than ownership status in determining SOE performance. For a review of these studies, see H-J. Chang & A. Singh (1993), ‘Public Enterprise in Developing Countries and Economic Efficiency’,
26
Some economists argue that competition may be ‘simulated’ in a natural-monopoly industry by artificially dividing it up into smaller (say, regional) units and rewarding/punishing them according to their relative performances. Unfortunately, this method, known as ‘yardstick competition’, is difficult to manage even for well- resourced developed country regulators, as it involves administering complicated performance-measurement formulas. It is highly unlikely that the regulators in developing countries can cope with them. Moreover, in the case of network industries (e.g., railways), the potential benefit from simulated competition among regional units should be set against the increased costs of co-ordination failure due to the fragmentation of a network. The British railway privatization of 1993 created dozens of regional operators that compete with each other very little (due to geographically-based franchising) while providing poor connections with trains run by other operators.
27
For example, during the 1980s, the state-owned railway of Britain faced quite intense (partial) competition from privately-owned bus companies in some market segments.
*
There is no agreed definition of what is a controlling stake in an enterprise’s shares. A holding of as little as 15% could give the shareholder effective control over an enterprise, depending on the holding structure. But, typically, a holding of around 30% is considered a controlling stake.
*
The full argument is somewhat technical, but the gist of it is as follows. In a competitive market, producers do not have the freedom to set the price, as a rival can always undercut them until the point where lowering the price further will result in a loss. But the monopolist firm can decide the price it charges by varying the quantity it produces, so it will produce only up to the quantity where its profit is maximized. This level of output is, under normal circumstances, lower than the socially optimal one, which is where the maximum price a consumer is willing to pay is the same as the minimum price that the producer requires in order not to lose money. When the amount produced is less than the socially optimal quantity, it means not serving some consumers who are perfectly willing to pay more than the minimum price that the producer requires but who are unwilling to bear the price at which the monopoly firm can maximize its profit. The unfulfilled desire of those neglected consumers is essentially the social cost of monopoly.
Chapter 6
1
It is estimated that, in 2005, 6.1% of the adult population (15–49 years) in sub-Saharan African carry the HIV virus, as opposed to 1% for the world as a whole. The epidemic has taken on apocalyptic proportions in Botswana, Lesotho and South Africa, but is also very serious in Uganda, Tanzania and Cameroon. It is estimated by the United Nations that Botswana has the most serious epidemic, with 24.1% of the adult population having HIV virus in 2005. Lesotho (23.2%) and South Africa (18.8%) follow closely. The problem is also very serious in Uganda (6.7%), Tanzania (6.5%) and Cameroon (5.4%). All the statistics are from UNAIDS (United Nations Program on HIV/AIDS) (2006),
2
3
When the US government announced its intention to stockpile the anti-anthrax drug, Cipro, Bayer volunteered to give a substantial discount to the US government (it offered $1.89 per tablet instead of the drugstore price of $4.50 per tablet). But the US government considered even this insufficient, given the fact that a copy drug produced in India cost less than ?20. The US government got another 50% discount from Bayer by threatening to impose compulsory licensing. For further details, see A. Jaffe & J. Lerner (2004),
4
H. Bale, ‘Access to Essential Drugs in Poor Countries – Key Issues’, downloadable from http://www.ifpma.org/News/SpeechDetail.aspx?nID=4
5
‘Strong global patent rules increase the cost of medicines’,
6
See the website of the US pharmaceutical industry association, http://www.phrma.org/publications/profile00/chap2.phtm#growth.
7
For example, a major survey conducted in the mid-1980s asked the chief R&D executives of US firms what proportion of the inventions they developed would not have been developed without patent protection. Among the 12 industry groups surveyed, there were only three industries where the answer was ‘high’ (60% for
