What are the main government agencies that implement competition policy?
The Competition and Markets Authority (CMA), regulatory bodies, the EU Commission
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Why are markets regulated by governments?
It is likely that otherwise many businesses would act against public interest so governments have to intervene to protect the public
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How do laws and regulations promote competition?
They prohibit cartels and collusion, restrictive practices are prevented, mergers and takeovers that are likely to give a business 25% of the market are investigated and may not be allowed to proceed
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When are mergers and takeovers are allowed to go through?
When investigators think they will not be a threat to customers because the business has grown through its own efficiency and competitiveness so that the market remains contestable and competitive
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What is a legal monopoly?
When a business has 25% or more share of the market, so some businesses have to sell off part of their organisation in order to keep in the limit
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How can privatising companies increase competition?
It can increase efficiency and reduce market power and force companies with market power to compete
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What are the consequences of breaking the promoting competition laws?
Businesses may face investigation and severe penalties
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When does a natural monopoly occur?
When the most efficient scale of production is a monopoly because more than one producer or supplier would involve wasteful duplication of resources
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How can natural monopolies be regulated?
By a regulatory body which ensures that they do not exploit consumers by overcharging and make efforts to keep production costs down
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What is a regulatory body?
A public authority or government agency responsible for exercising autonomous control over a sphere of business activity
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What is the problem that may occur with regulatory bodies?
They work closely with the organisations they are appointed to monitor and they share a great deal of information so they may be subject to regulatory capture
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What is regulatory capture?
When the regulator is influenced by the industry's point of view and perhaps don't ensure the service is being provided at the best price
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How can suppliers fox their customers?
With misleading information
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How can customers be mislead by businesses?
Inappropriate labelling, pricing strategies that obscure the true cost of the product, price fixing, tacit collusion, unfair contracts, borrowing more than they can afford
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How can regulators protect consumers?
They ensure companies don't charge excessive prices and protect consumers from poor quality products that may endanger consumers
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What is the CMA's aim?
To promote competition for the benefit of consumers, both within and outside the UK and to make markets work well for consumers, businesses and the economy
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What is the CMA responsible for?
Investigating mergers that could restrict competition, conducting market studies in markets where competition may be weak, bringing criminal proceedings against individuals who form cartels, enforcing consumer protection legislation
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What penalties can businesses that fail to comply with CMA requirements face?
Penalties of up to 5% of turnover and business managers can be sent to prison for anti-competitive practices, but if a business co-operated with the CMA they can expect leniency even if they were involved in the offence
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How can businesses get away with price fixing?
If they are producing specialised goods of a specialised nature
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What does the EU Competition Directorate aim to do?
Work with national competition authorities to control cross-border practices that restrict competition and it enables all competition authorities across the EU to pool their experience and work together
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What measures does the EC have in place to protect public interest?
Businesses may not fix prices or divide markets amongst themselves, they may not use predatory pricing and are not allowed to merge if that would give them control of the market, companies that do a lot of business in the EU can't merge without appro
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What fines can the EU impose?
Up to 10% of global shares
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What employee protection has the UK government introduced?
Equal pay and equal opportunities, minimum wages, maximum 48-hour working week, health and safety act and strict rules that prevent unfair dismissal
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What is the opportunity cost of regulation?
It can be expensive for employers but the lack of it can be costly for society; the social cost of poverty and accidents is passed onto the NHS which can reduce economic growth
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Other cards in this set
Card 2
Front
Why are markets regulated by governments?
Back
It is likely that otherwise many businesses would act against public interest so governments have to intervene to protect the public
Card 3
Front
How do laws and regulations promote competition?
Back
Card 4
Front
When are mergers and takeovers are allowed to go through?
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