<blockquote>
<p>But how common are examples where a nationalized business, ideally operating at zero net profit, exists alongside loosely-regulated private businesses producing similar products?</p>
</blockquote>
<p>This is extremely uncommon when we talk about a single country.</p>
<blockquote>
<p>Could such a system mitigate the effects of monopolies without heavy-handed government regulation?</p>
</blockquote>
<p>Certainly not. An optimal textbook (e.g. see Mankiw Principles of Economics) response to monopoly is price regulation that keeps prices at marginal costs, with an appropriate subsidy to cover fixed costs. As the comment mentions, going beyond undergraduate textbook, in dynamic case there is also be need for some extra economic profit for investment.</p>
<p>Note we are talking about economic costs here not accounting costs. Hence even a company having 0 economic profit can still have huge profits on its accounting books, despite still needing the subsidy. This is because modern accounting, and just accounting in general cannot capture all relevant economic realities (e.g. opportunity cost), and because accounting is used by many stakeholders for various purposes (e.g. investors to decide whether to invest, government to determine tax etc), there is strong incentive to make it look good or bad through various accounting tricks.</p>
<p>While the above mentioned textbook recipe is difficult to implement (marginal costs are difficult to measure, you can't just look into accounting, similarly fixed costs are sometimes difficult, government is also not ruled by benevolent social planner/dictator, so there are additional public choice issues), your proposal does not add any benefit.</p>
<p>Setting separate national competitor does not make discovery of marginal costs and other necessary parameters easier. It could even make it harder, since it could be argued government can be more impartial when investigating business where it has no stake than business which it owns. Hence you have still the same problem as with regular price regulation.</p>
<p>Moreover, monopolies typically exists because a firm has large fixed costs which leads to increasing returns to scale. For example, if a production of the good is such that the cost function is <span class="math-container">$TC= q^{0.5}+100$</span>, then it is clearly completely irrational to have two separate firms producing at <span class="math-container">$q_1=q_2=100$</span> (even if we assume each only has to pay 1/2 of the fixed costs) as opposed to having one monopoly producing <span class="math-container">$Q=200$</span> paying full fixed cost of 100.</p>
<p>Hence what you propose is not improvement even compared to basic undergraduate textbook policy prescription. What you propose does not solve the problems inherent in standard policies, and it adds additional cost to society by forcing production to be at a level where costs are much higher than if there is just single monopoly.</p>

CC BY-SA 4.0
2024-02-04T04:47:49.903Z
You bring up an interesting question: Larger companies can lower costs using economics of scale. But if they get *too* big mono/oligopolies form and drive up costs. I guess that today's gigantic mega-conglomerates are way past the "sweet-spot" because profit-margins are record high but (based on personal experience) per-capita innovation has dropped. As long as the scale is *large enough* that the economics-of-scale benefits apply I don't see why a govt option is so bad? Price controls also work but I am concerned voters would not like them.
Kevin Kostlan
CC BY-SA 4.0
2024-02-04T10:41:55.523Z
@KevinKostlan 1. What do you mean they drive up cost? Why would company purposely increase its own costs? Companies try to maximize profit. 2. Monopolies form naturally only with this kind of production functions. If you observe monopolies that do not exhibit these increasing returns to scale they are either result of government intervention, or they are just temporary and not stable equilibrium result, so there is nothing that needs to be done they will dissolve by themselves. 3. You seem to be talking about accounting profit. Do you have some peer review study showing that *economic* profit
1muflon1
CC BY-SA 4.0
2024-02-04T10:46:17.743Z
Margins are at all time high? Without some further examination that might as well just signal the opportunity cost of capital is high and the real economic profit margin could be even lower than before. Also personal experience is not evidence. Some people have personal experiences with UFO abduction that’s not evidence for alien life. 4. First, setting up a government competitor does not make sense if there is industry that can be served by monopoly. So it can only be between having private and government operated monopoly.
1muflon1
CC BY-SA 4.0
2024-02-04T10:50:12.757Z
there is empirical evidence shows that private firms are generally operated more efficiently, there numerous case studies for that like Venezuelan oil industry and so on. When gov operates business it means that some gov official with no stake has to operate the business. That’s bad corporate governance 101, this is not good even in private sector which is why research shows CEOs should be paid with stocks at least to some point. Moreover, optimal regulation for monopoly involves a lot of investigation and in this case government ends up investigating itself, it leads to conflicts of interest.
1muflon1
CC BY-SA 4.0
2024-02-04T11:01:41.433Z
Also whenever we are talking about some public agencies not ruled by omniscient and benevolent social planner there are public choice issues
1muflon1
CC BY-SA 4.0
2024-02-04T22:49:49.887Z
"Why would company purposely increase its own costs". Bad word choice. I meant *prices* not costs.

"result of government intervention". Yes! Lobbying and *regulatory capture* is evil! US medical costs are the worst!
"just temporary and not stable". Good point! Example: "artisan" programmers, i.e. self-taught people with passion to code but little industry experience, are undervalued. Smaller companies in particular are starting to recognize this talent pool which could help them get a leg up on Big tech and break the oligopoly.
Kevin Kostlan
CC BY-SA 4.0
2024-02-03T13:14:40.470Z
2024-02-03T13:14:40.470Z
1muflon1
<p>Many products are dominated by oligopolies. For example <a href="https://simpleflying.com/why-airbus-and-boeing-have-no-competition/" rel="nofollow noreferrer">Boeing and Airbus</a> control most of the jetliner market.</p>
<p>There have been and are various degrees of <em>nationalization</em> in which a government takes over an industry such as oil. But how common are examples where a nationalized business, ideally operating at zero net tax burden, exists alongside loosely-regulated private businesses producing similar products?</p>
<p>Could such a system mitigate the effects of monopolies without heavy-handed government regulation?</p>
<p><strong>Edit:</strong> When I say &quot;Zero net tax burden&quot; I mean that there can be profit but that it would have to be re-invested into R&amp;D and so would have zero net effect on the coffers. Also, what's &quot;best&quot; for society is not necessarily zero-tax (roads and public transit are subsidized by tax dollars). &quot;Ideal&quot; is &quot;whats ideal for the example&quot; which is to provide services at-cost.</p>

CC BY-SA 4.0
2024-02-03T12:36:49.993Z
Why do you say operating at zero net profit is ideal? How will the business invest into innovation or modernization of their operation if it cannot accumulate resources for doing so. Also, why would a rational and benevolent policymaker operate company if the return to capital is below the marginal cost of capital, that would imply the business is literally over time hurting society's productive capacity since the capital could be reallocated to some better uses.
Lorenzo Pozzi
CC BY-SA 4.0
2024-02-04T04:27:42.977Z
@LorenzoPozzi: Re-investing profit is not having a profit in a sense. I was more thinking of zero net tax burden: It's not a revenue source nor a public service (in the sense that schools, etc are).
Kevin Kostlan
CC BY-SA 4.0
2024-02-04T13:48:10.993Z
"Zero profit does not mean that the company can't re-invest profit into R&D", explain how a company can re-invest profit into R&D when profit is 0. I don't know if you understand this but 0 is symbol that represents the idea of nothing. Reinvesting nothing gives you nothing
Lorenzo Pozzi
CC BY-SA 4.0
2024-02-04T22:35:24.940Z
@LorenzoPozzi: I edited it to clarify.
Kevin Kostlan
<regulation><monopolistic-competition>
Government companies providing products at-cost
Kevin Kostlan
# Government companies providing products at-cost

(Asked by: username_0 on 2024-02-03)

Many products are dominated by oligopolies. For example [Boeing and Airbus](https://simpleflying.com/why-airbus-and-boeing-have-no-competition/) control most of the jetliner market.

There have been and are various degrees of *nationalization* in which a government takes over an industry such as oil. But how common are examples where a nationalized business, ideally operating at zero net tax burden, exists alongside loosely-regulated private businesses producing similar products?

Could such a system mitigate the effects of monopolies without heavy-handed government regulation?

**Edit:** When I say "Zero net tax burden" I mean that there can be profit but that it would have to be re-invested into R&D and so would have zero net effect on the coffers. Also, what's "best" for society is not necessarily zero-tax (roads and public transit are subsidized by tax dollars). "Ideal" is "whats ideal for the example" which is to provide services at-cost.

**Tags:** regulation, monopolistic-competition

> **Comments:**
> **username_1**: Why do you say operating at zero net profit is ideal? How will the business invest into innovation or modernization of their operation if it cannot accumulate resources for doing so. Also, why would a rational and benevolent policymaker operate company if the return to capital is below the marginal cost of capital, that would imply the business is literally over time hurting society's productive capacity since the capital could be reallocated to some better uses.  
> **username_0**: @LorenzoPozzi: Re-investing profit is not having a profit in a sense. I was more thinking of zero net tax burden: It's not a revenue source nor a public service (in the sense that schools, etc are).  
> **username_1**: "Zero profit does not mean that the company can't re-invest profit into R&D", explain how a company can re-invest profit into R&D when profit is 0. I don't know if you understand this but 0 is symbol that represents the idea of nothing. Reinvesting nothing gives you nothing  
> **username_0**: @LorenzoPozzi: I edited it to clarify.  

---

## 1 answers

### Answer by username_2 on 2024-02-03. Score: 0

> But how common are examples where a nationalized business, ideally operating at zero net profit, exists alongside loosely-regulated private businesses producing similar products?

This is extremely uncommon when we talk about a single country.

> Could such a system mitigate the effects of monopolies without heavy-handed government regulation?

Certainly not. An optimal textbook (e.g. see Mankiw Principles of Economics) response to monopoly is price regulation that keeps prices at marginal costs, with an appropriate subsidy to cover fixed costs. As the comment mentions, going beyond undergraduate textbook, in dynamic case there is also be need for some extra economic profit for investment.

Note we are talking about economic costs here not accounting costs. Hence even a company having 0 economic profit can still have huge profits on its accounting books, despite still needing the subsidy. This is because modern accounting, and just accounting in general cannot capture all relevant economic realities (e.g. opportunity cost), and because accounting is used by many stakeholders for various purposes (e.g. investors to decide whether to invest, government to determine tax etc), there is strong incentive to make it look good or bad through various accounting tricks.

While the above mentioned textbook recipe is difficult to implement (marginal costs are difficult to measure, you can't just look into accounting, similarly fixed costs are sometimes difficult, government is also not ruled by benevolent social planner/dictator, so there are additional public choice issues), your proposal does not add any benefit.

Setting separate national competitor does not make discovery of marginal costs and other necessary parameters easier. It could even make it harder, since it could be argued government can be more impartial when investigating business where it has no stake than business which it owns. Hence you have still the same problem as with regular price regulation.

Moreover, monopolies typically exists because a firm has large fixed costs which leads to increasing returns to scale. For example, if a production of the good is such that the cost function is $TC= q^{0.5}+100$, then it is clearly completely irrational to have two separate firms producing at $q\_1=q\_2=100$ (even if we assume each only has to pay 1/2 of the fixed costs) as opposed to having one monopoly producing $Q=200$ paying full fixed cost of 100.

Hence what you propose is not improvement even compared to basic undergraduate textbook policy prescription. What you propose does not solve the problems inherent in standard policies, and it adds additional cost to society by forcing production to be at a level where costs are much higher than if there is just single monopoly.

> **Comments:**
> **username_0**: You bring up an interesting question: Larger companies can lower costs using economics of scale. But if they get *too* big mono/oligopolies form and drive up costs. I guess that today's gigantic mega-conglomerates are way past the "sweet-spot" because profit-margins are record high but (based on personal experience) per-capita innovation has dropped. As long as the scale is *large enough* that the economics-of-scale benefits apply I don't see why a govt option is so bad? Price controls also work but I am concerned voters would not like them.  
> **username_2**: @KevinKostlan 1. What do you mean they drive up cost? Why would company purposely increase its own costs? Companies try to maximize profit. 2. Monopolies form naturally only with this kind of production functions. If you observe monopolies that do not exhibit these increasing returns to scale they are either result of government intervention, or they are just temporary and not stable equilibrium result, so there is nothing that needs to be done they will dissolve by themselves. 3. You seem to be talking about accounting profit. Do you have some peer review study showing that *economic* profit  
> **username_2**: Margins are at all time high? Without some further examination that might as well just signal the opportunity cost of capital is high and the real economic profit margin could be even lower than before. Also personal experience is not evidence. Some people have personal experiences with UFO abduction that’s not evidence for alien life. 4. First, setting up a government competitor does not make sense if there is industry that can be served by monopoly. So it can only be between having private and government operated monopoly.  
> **username_2**: there is empirical evidence shows that private firms are generally operated more efficiently, there numerous case studies for that like Venezuelan oil industry and so on. When gov operates business it means that some gov official with no stake has to operate the business. That’s bad corporate governance 101, this is not good even in private sector which is why research shows CEOs should be paid with stocks at least to some point. Moreover, optimal regulation for monopoly involves a lot of investigation and in this case government ends up investigating itself, it leads to conflicts of interest.  
> **username_2**: Also whenever we are talking about some public agencies not ruled by omniscient and benevolent social planner there are public choice issues  
> **username_0**: "Why would company purposely increase its own costs". Bad word choice. I meant *prices* not costs.  "result of government intervention". Yes! Lobbying and *regulatory capture* is evil! US medical costs are the worst! "just temporary and not stable". Good point! Example: "artisan" programmers, i.e. self-taught people with passion to code but little industry experience, are undervalued. Smaller companies in particular are starting to recognize this talent pool which could help them get a leg up on Big tech and break the oligopoly.  

---

