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Economics ­ Competition Policy (18.11.12)

Competition Policy
Imperfect Competition = Productive & Allocative inefficiency in the production of goods
and services

(This need not be so if monopolistic firms are encouraged to be dynamically efficient)

The threat of market contestability and the implementation of UK & EU competition
policy may…

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The OFT uses a number of indicators relating to market structure, conduct and performance
to monitor the UK economy for evidence of monopoly abuse

Concentration Ratios can provide evidence of monopolies, other indicators include:

Evidence of price discrimination & price leadership
Merger activity
Ratios of advertising expenditure to sales

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Merger policy falls under the 1990 Competition Act and also the 2002 Enterprise Act

The concern is that takeovers and mergers might create a new monopoly

The OFT surveys merger activity ­ passes on any potential ineligible mergers to the CC
(especially if it is anticipated that it will…

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Public Ownership vs. Privatisation

Nationalised Industries:

A corporation owned by the state
In the past public ownership of essential utilities such as gas, electricity & water was
judged by governments to be vital in order to ensure their production ­ for example
in times of war crisis
Governments all came…

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Advantages & Disadvantages of Privatisation:


Promoting Efficiency:

Key advantage of privatisation from a free-market viewpoint
Profit motive creates incentives to cut costs and increase dynamic efficiency
Employees given shares in company = may lead to greater productivity

Raises Revenue for Government:

Selling former nationalised assets = provides Government with…

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Worse allocation of resources:

Privately run monopolies are `profit-maximising' and so will restrict output to a level
that is neither productively or Allocatively efficient
A state-run organisation could produce at a level which equates to the marginal cost
of production
A privatised monopoly could therefore lead to a loss…

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Regulation of Markets:

Involves setting rules & controls that restrict market freedom

External Regulation = Involves an external agency such as the OFT or Competition
Commission setting & enforcing rules & controls

Self-regulation = A group of firms regulate themselves, for example, through a professional
association such as the British…

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Encourages `cherry picking' of the most attractive market areas e.g. running the
premium bus route and removing rural services
No guarantee of price reductions for consumers ­ especially not in the long-run
May simply replace a state monopoly with a private one


gurpreet sohal


this is amazing i learnt so much 

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