Competition Policy
- Created by: ekenny5
- Created on: 11-05-22 17:01
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- Competition Policy
- The Competition and Markets Authority (CMA) is the regulatory body in the UK overseeing markets and have the power to intervene
- ORR - rail regulators
- CAA - aviation
- OFCOM - telecommunications
- OFWAT - water
- OFGEM - gas and electric
- must be in line with the European Competition Commission while in the EU
- Aims of Competition Policy
- Protecting public interest
- prevent excessive pricing
- promote competition
- ensure quality, standards and choice
- promote innovation
- regulate natural monopolies
- ensure effective privatisation of natural monopolies
- When does the CMA intervene
- anti-trust and cartel agreements
- investigate mergers
- liberalise concentrated markets
- monitor state aid control - eg excessive subsidies distorting markets
- Protecting public interest
- Monopoly Regulation
- price regulation: prices unable to increase by more than RPI
- or RPI - X to promote efficiency
- RPI + K to allow for capital investment
- aim of allocative efficiency
- or RPI - X to promote efficiency
- depends on level of K and X
- aim of allocative efficiency
- quality control/ perfect targets
- can lead to shortcuts
- Profit control - rate of return regulation
- asymmetric information
- Taxing profits
- worsens monopoly outcomes, avoidance, reduced innovation
- Merger policy if MS >25%
- privatisation, deregulation and reducing trade barriers
- Evaluation
- level of information
- costs vs benefits
- admin costs
- especially if ineffective
- regulatory capture
- lose the benefits of monopoly
- risk of gov failure
- price regulation: prices unable to increase by more than RPI
- Privatisation
- state owned operations sold to private firms
- introduce competition
- Advantages: increase allocative and productive efficiency
- move towards competitive P=MC
- consumer surplus
- reduce waste
- profit incentive
- move towards competitive P=MC
- Disadvantages: limited competition so inefficiency, may be loss making industries even if they're socially desirable
- natural monopolies need large output to benefit from EOS
- create oligopoly
- natural monopolies need large output to benefit from EOS
- HIDO:
- level of competition
- level of regulation
- Deregulation
- reduce legal barriers to entry to incentivise competition
- P=AR to P=MR showing consumer surplus
- Advantages: consumer choice so allocative efficiency, productive and X efficiency, increased dynamic efficiency
- Disadvantages: loss of natural monopoly - waste due to duplicating resources, formation of oligopoly rather than competition
- HIDO:
- short run vs long run
- other barriers to entry
- level of regulation
- reduce legal barriers to entry to incentivise competition
- Nationalisation
- taking an industry into public ownership
- For:
- economies of scale
- lower AC and lower P
- more focus on service provision and allocation of merit goods
- less likely to be externalities
- socially optimum levels
- gov can use the public sector for macro objectives
- manipulating inflation using wages
- economies of scale
- Against:
- diseconomies of scale risk
- lack of incentive to minimise costs - complacent and waste
- lower supernormal profits
- burden on tax payers
- opp cost
- low competition means higher prices
- moral hazard
- political policies override commercial issues
- Evaluation
- funding vs delivery
- Public Private Partnership?
- regulation
- competition in private sector could be better
- private objectives
- The Competition and Markets Authority (CMA) is the regulatory body in the UK overseeing markets and have the power to intervene
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