The UK Competition Policy - Unit 3

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Harry Bindloss
UK Competition Policy: Government policies to prevent and reduce the abuse of
monopoly power.
Abuse of monopoly power can lead to market failure and be against the public interest.
Therefore Governments are concerned to intervene and protect the interests of the
There are four different levels that the UK policy operates on:
Level 1 ­ Prohibits restrictive practices: agreements between firms which: Implies
Level 2 ­ Prohibits abuse of dominant market position: conduct by dominant firms
(firms that have over 40% market share) such as:
Limit out or technology
Unfair selling price
Unfair trading conditions
Share markets or sources of supply
Apply different conditions to customers depending upon the firm
Include supplementary obligations in contracts not linked to the main subject of the
Level 3 ­ The investigation of mergers: where two or more firms combine to make 25%
or over market share. Mergers can be prevented from going ahead or conditions can be laid
down, which the firms must adhere to, before the merger can go ahead
Level 4 ­ Appeals; all decisions made by the competition authorities can be appealed
against and their legality will be considered and reviewed. Decisions can be overturned.
There are 3 key bodies that implement this legislation.
1. The office of Fair Trading (OFT): Is under the control of the Chairman of the Board of
Directors of the OFT. The OFT operates level 1 and level 2 where the dominant firm has
over 40% market share.
2. The competition Commission (CC): Is also under the control of the OFT. The CC
operates level 2 policy where the firm has 25% market share and over. There is therefore
some overlap with OFT. The CC also operates level 3 policies. The Competition
commission operates at level 4 policy.
3. Industry Regulatory Bodies: for the privatised utilities. Operate levels 1,2 and also 3
but only for firms in the their respective industries. The OFT and the CC can also
investigate these firms.

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Harry Bindloss
Advantages for and against controlling the behaviour of dominant firms
Stops price fixing which reduces consumer surplus
Stable prices
More control of Monopolies
Prohibits the abuse of dominant market positions
Fair trading
Stops mergers that would be damaging to markets
Appeals make the UK competition policy not over powerful
Could prevent supernormal profits and therefore is reducing R&D budgets
Limits output
Limits technology
Increased costs in both time and money
Opportunity cost ­ time wastage…read more


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