Standard answers unit 3 economics

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JAN 2010
Di
scuss
the
eff
ecti
veness
of
the
C ompet
it
ion
Commissi
on i
n r
egulat
ing
indust
ri
es
· Role of Competition Commission)
· Application to an industry
· Specific types of regulation or powers of the CC
· Enterprise Act 2002 e.g. the CC directs not just advises increased powers to fine 10%
revenue for three years, jails term for directors, ability to force sale of assets
Evaluation
· Award counterarguments to the points above, either for or against regulation
· Indication of the problem that faces the authorities in trying to encourage competition
e.g. regulatory capture, information asymmetry. This may include reference to the
extract.
· Time for investigation is too long
· Cases need to be referred (selection or time issue)
· EC supersedes CC and other issues regarding international regulation
· Regulation meant to only be a short term solution until competition is possible
· Regulation and planning would be better
· Government failure may reduce effectiveness of regulation
· Competition may cause problems
E val
uate
one pr
ici
ng
a nd
one nonp r
ici
ng
str
ategy
that
f i
rms
coul
d adopt
t
o i
ncrease
sal
es.
Price strategy:
· Predatory pricing
· Limit pricing
· Sales maximisation
· Revenue maximisation
· Buy one get one free
· Price discrimination
· Undercutting rivals
non-price strategy :
· Further increases in efficiency
· Investment into new technology to increase productivity.
· Improve product quality
· Marketing campaign to win business customers.
· Advertising
· Promotion through other means, bundling products
· Move production abroad
· External growth

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Evaluation :
It may be harder to make further increases in efficiency; all firms trying to engage in
R&D
Depends on PEDs
There may be retaliation, e.g. price war
Short term/long term success
Investment /R&D is expensive and there is no guarantee of success.…read more

Page 3

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Increased job security as profits rise
· Higher wages/perks
· Share options increase in value
· More scope for promotion in larger firms
· Allow non worsening situation as being in the interests of employees
Evaluation:
· Greater possibility of collusion to raise prices
· Less incentive to innovate and produce better drugs
· Increased chance of x-inefficiency and exploitation or price discrimination
· Prices rise if there are diseconomies of scale
· Worker redundancies
· Morale issues
· Less choice because there are fewer…read more

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Critical assessment of game theory e.g. game theory leads to lack of competition
not a way to compete
· Critical assessment of the method of competition
· Game theory shows that the worst outcome might be reached as illustrated by
problems of Prisoners' Dilemma or price war
· What looks like competition might be the emergence of monopoly power, e.g.
duopoly pricing
· Other critical assessment of game theory, e.g. lack of rationality, lack of
information for consumers
· How credible is the threat? e.g.…read more

Page 5

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Demand for in shops less price elastic than demand for the product in
supermarket
· establish its brand in the market i.e. market penetration pricing
· Potential economies of scale in production
· Low costs of marketing on entry
· To under-price competition
· Recession ­ have to keep prices down,
Evaluation:
· Prioritisation e.g. critical consideration of costs
· Missing information e.g. no cost comparisons given in the information
· Short run, long run issues, e.g.…read more

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Evaluation:
· It is too early to say.
· Difficult to know outcomes in game theory, or other game theory critique, e.g. kinked
demand curve to show sticky prices
· Award game theory responses as more than one point, e.g.…read more

Page 7

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Quali
ty
ma y
b e red u ced as
a
cost
cutt
in g
me a su re
·
I
t
dep ends
on t
he q u al
it
y of
t
he new
pro ducts
as t o
t
he ext
ent
of
th e be ne fi
t
to t
he consume r
·
Fi
rms
ma y
le ave
th e ma r
ket,
me ani
ng l
e ss choic e
f
or
customers
·
Consume r
be nefi…read more

Page 8

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·
Comp etit
ion
migh t
be
w ast
eful
,
e.g.…read more

Page 9

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·
Bran d l
o yalt
y may l
imit
t
h e success
of
comp et
ition
pol
icy
·
Si
g n i f
i
c ant
be nef
it
s i
n co st
reducti
ons and
resea rch
have n ot
bee n
s een
in
pra ct
ice.…read more

Page 10

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Assess
how
the
new l
y combined
indust
ry
company
c oul
d i
ncrease i
ts
share
of t
he market
i
n compet
it
ion
w it
h ot
he r
f
ir
ms .
Refer
t
o game
theor
y i
n your
answer
.…read more

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