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Competition policy in Action
Competition policy is the structures governments have in place for the regulation of
markets and monopolies.
Prevent growth of Monopoly power
Prevent abuse of Monopoly power and restrictive trading practices
Investigate suspected abuses of monopoly power and recommend policy decision.
Reduce barriers to entry and keep markets contestable.
Competition Policy Agencies
In the UK, there are 2 main government bodies responsible for Competition Policy
1. Office of Fair Trading. (OFT) responsible for investigating abuses of monopoly power.
Has the power to refer potential mergers to Competition Commission for investigation
2. Competition Commission. Looks at mergers to see whether in public interest. Can also
investigate certain industries.
Regulation of Privatised Industries
Privatisation does not remove the need for regulation
Regulators have to act as surrogate competition
In the UK, regulation has been through price-capping
Certain privatised industries that are still regulated are not permitted to raise prices
beyond RPI-X (now CPI - X)
RPI-X : X is efficiency gains deemed necessary by the regulator
RPI+K: K is the additional capital spending a firm agrees with the regulatory
Based on increased quality or decrease in the number of complaints
Regulator monitors progress and fines if firm fails to meet these
Rate of return
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US where "excessive" profits are taxed Make profit based on capital
then rest taxed at 100%
No incentive to become more efficient past a certain level due being penalised
occurs when the regulating body comes to identify with the interests of the firm it
regulates and eventually becoming its champion rather than its watchdog.
Other functions of regulators includes
1. Checking quality of service e.g running unprofitable off peak service