In the Republic of Lantharia, the state-owned telephone company enjoys

QUESTION

In the Republic of Lantharia, the state-owned telephone company enjoys a monopoly. The government of Lantharia Republic wants to maximize the operating efficiency of this company by privatizing it.

Which of the following is most likely to help the government succeed in this endeavor?
A. Imposing high corporate taxes on the company immediately after its privatization

B. Increasing barriers to foreign direct investment

C. Intervening in the company’s operations by exercising price controls

D. Splitting the company into independent units to compete with each other

E. Prohibiting foreign companies from entering into the field of telecommunication in the Republic of Lantharia

ANSWER

D
When Brazil decided to privatize the state-owned telephone monopoly, Telebras Brazil, the government also split the company into four independent units that were to compete with each other and removed barriers to foreign direct investment in telecommunications services. This action ensured that the newly privatized entities would face significant competition and thus would have to improve their operating efficiency to survive.