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Chapter 6

POLS 3470 Chapter Notes - Chapter 6: Monopsony, Oligopoly, Monopolistic Competition

Political Science
Course Code
POLS 3470
Tim Mau

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CANADAS ECONOMIC STRUCTURE: Diversity, Dynamism, and the Political
Economy of Business- Government Relations
 Economic Structure: A term that describes the basic characteristics and divisions of
economic activity within either a particular geographic area or an overall economic
 The structures and networks of business ownership and activity play a vital role in:
 1) The nature and levels of economic activity
 2) How these factors interact with the institutions and policy of
 Two questions arise. Are markets for the production and distribution of goods and
services? Are markets for control of corporate structures and the economic activities
in which they engage?
 The dynamics of structural economic change resulting from the responses of business
and governments to technological change and economic globalization since the
1970s have dramatically altered ways in which Canada’s economy is organized.
 Continuous change has increased the importance of fostering Canada’s international
economic competitiveness and of enabling citizens, business, and government to
adapt to circumstances often beyond their immediate control.
Complexity, Openness, and Dynamism in Economic Structures
 Capital Markets: Processes for organizing and mobilizing savings and investments
from varied sources to meet the financial needs of individuals, businesses,
governments and other economic actors.
 Complexity
 Economic structures in developed industrial countries are complex and highly
diverse, incorporating different functional economic sectors and types of business
activity, which typically involve overlapping economic, political and social
 Different elements of sectors such as transportation (air, rail, trucking), financial
services (banks, insurance, securities), energy production/distribution (oil, coal, gas),
and construction are subject to competitive conditions and approaches to
government regulation. Can be between federal and provincial.
 Friedrich Hayek (economist/philosopher) explained that the greatest challenge at
central state planning of the economy is the difficulty that government policy-
makers have in measuring the innumerable economic interactions of producers and
consumers in a complex industrial economy.
 The effects of this complexity can be seen on at least 4 different levels:
 1) The structure of business operations
 2) The institutional structures and process of government

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 3) Regional variations in economic activity
 4) The accumulation of overlapping and competing policy objectives
 Openness affects the characteristics of economic organization and regulatory systems
both within a particular political space or geographic area across
political/geographic boundaries.
 Reveals the degree of freedom enjoyed by citizens and business to enter (or exit)
particular areas of economic activity.
 Open economic systems become part of more complex networks of economic activity
that may be strengthened or otherwise influenced by the actions of their
 The openness of markets to external factors can be measured according to the relative
volume/distribution of international trade and capital flows, including foreign
 These factors are heavily influenced by legal systems governing both
international and domestic economic transactions.
 Openness can also include the public/private sector
 Dynamism is the ability of economic actors and structures to changes in the broader
economic environment. May result in political or economic shocks, technological
innovations, domestic or international competitive pressures arising from the normal
workings of the market economy.
 Economic dynamism is inherent to the functioning of a competitive capitalist market
 Competition breeds innovation in meeting existing customer demand and in creating
new products.
 Seen in Canadian financial and capital markets.
 Helped to transform the ownership structures of Canada’s largest corporations.
Ownership and Control of Economic Activity
 Canada’s economic structure system of advanced capitalism increasingly
integrated with the North American global economies.
 Strategic Control The ability to direct a firms priorities and business strategies.
 Operational Control In the hands of professional managers with relatively small
ownership stakes.
 Institutional investors Investment banks, mutual funds, and pension funds with
significant equity holdings in many firms.
 These investors have greatly increased the importance of corporate governance
issues (particularly after scandals)
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