Privatisation

Evaluation

Although privatisation improves efficiency and reduces X-inefficiency as firms allocate resources more effectively as they have to react to market signals of supply and demand. The use of regulation by the government can help reduce the market failure by reducing monopoly power and removing the negative externalities associated with production, thus when opening up the market to competition the primary factor to consider is the type of industry and if a natural monopoly is likely to occur such as in the water industry - OFWAL helps regulate the market and enforces firms to produce in the consumer's benefit instead of the firm's main objective such as profit maximisation.