Editing X-inefficiency (section)

== Causes to X-inefficiency ==
'''Monopoly Effect''' - A [[monopoly]] is a [[price maker]] in that its choice of output level affects the price paid by consumers. Consequently, a monopoly tends to price at a point where price is greater than long-run average costs. X-inefficiency, however tends to increase average costs causing further divergence from the economically efficient outcome. The sources of X-inefficiency have been ascribed to things such as [[overinvestment|over investment]] and empire building by managers, lack of motivation stemming from a lack of competition, and pressure by [[labor unions]] to pay above-market wages.<ref name=":1">{{Cite web |title=X Inefficiency |url=https://www.economicshelp.org/blog/glossary/x-inefficiency/ |access-date=2023-04-24 |website=Economics Help |date=January 2021 |language=en-GB}}</ref>

Suggested by Bergsman, The sum of X-inefficiency and monopoly returns is much larger than costs of mis-allocation.

In reality, industries with strong monopoly capacity will be more restricted by legal regulations. These regulations can impose competitive pressure on companies and prevent the industry turning into a true monopoly. Meanwhile, these artificial pressure of regulations can induce competitive pressure to companies, thus improving X-inefficiency.<ref name=":1" />

When a particular market lacks competition, companies that are monopoly would have incentive to increase their prices to in order to make [[Superprofit|super-profits]]. In addition, the low pressure from having no competition would lead to difficulty controlling costs resulting in potential inefficiencies.<ref name=":1" /> 

'''Government Effect''' - A [[Public limited company|state owned firm]] may not be operating to make profit, therefore it would have no incentive to cut costs.

'''[[Principal–agent problem|Principal Agent Effect]]-''' [[Shareholder|Shareholders]] typically have a primary goal of maximizing profits and reducing costs, managers and employees may opt to have different priorities for example they may seek to keep costs low up to a point of maintaining job security, but allow costs to increase if it means improving the quality of their work experience.<ref name=":1" />

'''Motivation Effect-''' Workers and managers may be demotivated to work diligently. This arises from various factors such as strained industrial relations, As a result employees may purposefully take extended breaks and not exert their best effort in order to increase profitability.<ref name=":1" />