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Y2 Micro > 3.6 Government Intervention > Flashcards

3.6 Government Intervention Flashcards

1
Q

What is the role of the Competition and Markets Authority (CMA)?

A

Promote competition for consumer benefit, investigate mergers and breaches of competition law, enforce consumer protection law, and bring criminal cases against cartel participants

The CMA can impose financial penalties, prevent mergers, and reverse business actions.

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2
Q

What is assessed when evaluating mergers in the UK?

A

The specific circumstances of each case to determine if there will be a substantial lessening of competition (SLC)

The merger is approved if its potential benefits exceed its costs.

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3
Q

What market share triggers a merger investigation by the CMA?

A

Greater than 25% market share or a combined turnover of £70 million or more.

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4
Q

What is the aim of preventing large companies from merging?

A

To prevent exploitation of customers through higher prices, poorer service quality, and reduced choice.

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5
Q

What is the regulatory capture problem faced by the CMA?

A

The CMA may lack sufficient information to make informed decisions regarding mergers.

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6
Q

What was the outcome of Tesco’s takeover of Booker?

A

Allowed by the CMA due to minimal expected impact on competition.

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7
Q

What was the outcome of the Ryanair and Aer Lingus merger attempt in 2010?

A

Blocked by the European Commission due to control of over 80% of flights from Ireland.

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8
Q

What defines anti-competitive behavior in monopolies?

A

Exploiting a dominant position to stifle competition.

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9
Q

What is price regulation?

A

Setting price controls to ensure monopolists charge below profit-maximizing prices using the RPI-X formula.

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10
Q

What does the ‘X’ represent in the RPI-X formula?

A

Expected efficiency gains of the firms.

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11
Q

What is the ‘RPI-X+K’ formula?

A

A price regulation formula where ‘K’ represents the level of investment, used in the water industry.

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12
Q

What is the problem with setting the ‘X’ in the RPI-X formula?

A

Difficult to determine due to rapid technological improvements and asymmetric information.

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13
Q

What is ‘rate of return’ regulation?

A

A system where prices are set to cover operating costs and earn a ‘fair’ rate of return based on competitive market standards.

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14
Q

What are quality standards in the context of monopolies?

A

Government-imposed standards to ensure firms provide high-quality goods and services.

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15
Q

What is yardstick competition?

A

Setting performance targets based on the best-performing firms to encourage improvement.

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16
Q

What is the Red Tape Challenge?

A

An initiative aimed at reducing regulation, particularly for small businesses.

17
Q

What is deregulation?

A

Removal of legal barriers to entry in a market to allow private enterprises to compete.

18
Q

What are Private Finance Initiatives (PFI)?

A

Contracts where the government outsources the provision of goods or services to private firms.

19
Q

What is the purpose of competitive tendering?

A

To minimize costs for the government by inviting bids from private firms for the provision of goods or services.

20
Q

What are anti-monopsony laws?

A

Laws designed to prevent monopsonists from exploiting suppliers by reducing prices.

21
Q

What are the key protections for workers provided by the government?

A

Health and safety laws, employment contracts, redundancy processes, maximum work hours, and union rights.

22
Q

What is privatisation?

A

The sale of government equity in nationalised industries to private investors.

23
Q

What are the advantages of privatisation?

A
  • Encourages competition
  • Reduces public sector net cash requirement (PSNCR)
  • Increases accountability of managers
  • Reduces government interference
  • Allows for public ownership through shares
24
Q

What are the disadvantages of nationalisation?

A
  • Principal-agent problem
  • X-inefficiency leading to higher prices
  • Government influence on operations
  • Potential lack of investment
25
Q

What is the impact of government intervention on monopolies?

A

Prevents excessive pricing, limits profits, and aims for fair prices and quality services.

26
Q

What is a natural monopoly?

A

An industry where a single firm can produce at a lower cost than multiple firms.

27
Q

What is the allocative efficient output in the context of nationalisation?

A

Output produced where average revenue equals marginal cost (AR=MC).

28
Q

What is one impact of government intervention in preventing monopolies?

A

They prevent monopolies from charging excessive prices and aim to limit their profit.

Governments try to ensure fair prices, quality service, and consumer choice through regulation.

29
Q

How does government intervention aim to increase efficiency in a market?

A

By increasing competition and contestability.

Regulation of prices ensures businesses keep costs low and prevents X-inefficiency.

30
Q

What is X-inefficiency?

A

A situation where a business does not minimize its costs due to lack of competition.

Government regulation can prevent this by keeping costs low.

31
Q

What are economies of scale?

A

Cost advantages that a business obtains due to the scale of operation.

Public sector businesses may experience lower costs due to economies of scale.

32
Q

What is allocative efficiency?

A

A state where resources are distributed in a way that maximizes consumer welfare.

Public sector businesses aim to maximize social welfare.

33
Q

What is regulatory capture?

A

When a regulator becomes influenced by the firm or industry they regulate.

This can weaken the regulator’s ability to perform impartially.

34
Q

How can large corporations influence regulatory bodies?

A

By investing in understanding the system and gaining regulator support.

They may develop personal connections with regulators, affecting impartiality.

35
Q

What is asymmetric information in the context of regulation?

A

When regulatory bodies rely on information provided by industries, which may be inaccurate or limited.

This can lead to incorrect price targets and government failure.

36
Q

Fill in the blank: Government intervention is often limited due to the political power of ______.

A

large firms and industries.

These firms can lobby the government and form pressure groups.

37
Q

True or False: Government regulation is always the most effective way to achieve competition and efficiency.

A

False.

Government failure can occur, challenging the effectiveness of regulation.

38
Q

What was the alleged capture of HMRC by Vodafone?

A

Vodafone negotiated a tax reduction from £7bn to £1bn in 2009-10.

This is an example of regulatory capture and government failure.

Y2 Micro (6 decks)

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