3.6 Government Intervention Flashcards
What is the role of the CMA
Promotes competition for the benefit of consumers
Investigates mergers and abuse of market power
Takes action against anti-competitive behaviour
Protect consumers from unfair trading practices
What is the impact of merger prevention by the CMA
Choice - prevents the build up of monopolies which may reduce range of choice
Price - Regulation prevents exploitation of consumers by powerful firms
Costs - Greater competition provides stronger incentives to keep x-inefficiencies at a minimum
Innovation - Greater competition provides incentive to innovate
Explain price capping RPI-X and RPI+K
RPI-X - Allows prices to increase at the rate of RPI but subtract an amount reflecting the efficiency gains by the firm
RPI+K - Takes RPI and allows the addition of additional capital spending a firm has agreed with a regulator
Give two advantages of price capping
Creates incentive for firms to lower costs to generate more profit
Prevents the abuse of monopoly power of dominant firms, stops monopolies making excessive profits at the expense of the consumer
Give two disadvantages of price capping
Regulators may lack information in order to set price caps
Price caps reduces profits leading to less investment, under-investment could harm long-run infrastructure
Explain and Evaluate Profit Regulation
Set a maximum level of profit that can be earned
Regulators need to have a good understanding of costs and rates of return in the industry
Explain and Evaluate Quality Standards
Government sets Quality Standards where quality is an issue
Monopolies will try to resist or water down any quality requirements
Regulators have to make sure that standards are not set so high so it is not restrictive to the business
Explain and Evaluate Performance Targets
Government sets targets for price, product, quality or choice
Monopolists may find ways around targets without making improvements
Explain and Evaluate Nationalisation
Taking a privately owned company and put it in public ownership, changing business objectives from profit max to social benefit
Government run companies can be susceptible to X-Inefficiencies as there is less incentive to keep costs low
Explain how the Government promotes small businesses to enhance competition
Provide training and grants to potential new entrepreneurs
They could encourage the growth of existing small businesses through tax incentives or subsidies
Explain how Deregulation can enhance competition
Removing government controls in order to promote competition can improve efficiency through less costs
Explain how Competitive Tendering helps enhance business competition
Government contracts a public sector company to private sector firms for a low price, adding new profit maximising firms to the industry
Explain how Privatisation helps enhance business competition
Creates a greater incentive to cut costs and increase efficiency
If cost reductions outweigh the extra profit that is captured consumers could gain
How does regulation on monopsony power protect suppliers
Prevents suppliers revenue being harmed, having additional costs imposed and not receiving payment on time
How does nationalisation protect employees
Nationalisation leads to greater job security
Provides legislation rules on health and safety, employment contracts, max working hours etc
Could provide greater scope for trade unions to operate creating greater representation for workers concerns
