3.6.1 Flashcards
what is the government intervention to control mergers?
The competition and markets authority (CMA) often investigate mergers that result in a market share of around 25% or more in order to prevent uncompetitive outcomes in the market. If they believe that the merger will result in outcomes that are not in the public’s interest, then they will block the merger. Overall, this organisation aims to prevent firms from exploiting customers in forms such as high prices, low quantity and low quality standard, all of which have the potential to take place through large market share ownership.
What price regulation that government uses to control monopilies?
prevents monopolies from charging excessive prices to consumers, by putting price caps
* RPI-X, rate of inflation minus efficency returns X
* RPI-X+K, K is the capital investment requirements designed to increase product quality and meet EU quality standards
this puts a limit on the increase in pricing that a firm can place
what are the advanatges of price capping?
- protect consumer surplus
- incentivised cost cutting can help improve productive efficency
price cap can increase allocative efficency
what are the disadvanatges of price capping?
- determining level of X and K can be difficult in imperfect market, need to be just right so that outcome is competitive and firms can still survive
- oppotunity cost of administration costs
- regulatory capture
- to reduce X, may lay off workers
- less profit and so less investment and dynamic efficency
diagram: impact of price cap on monopoly
what profit regulation is put in place by the government against monopolies?
- windfall taxes: a one off tax on extra-ordinary profits
*
wht are the UK regulatory bodies?
- FCA: financial conduct authority
- OFGEM:
*
what other forms of regulation do the government put on monopolies?
examples
- performance targets
- quality standards
- eg: NHS GPs have to minimum number of people in an hour
- number of delays train companies are allowed to make in one day
- ambulance have to come in 8 minutes or less
what are problems with quality checks and performace targets?
- fines/ consequences not being scary enough
- unintended consequences, eg: bad quality of GP visits/ tarin jpurneys made extra long
what are some forms of government intervention to promote competition and contestbility?
- deregulation
- privatisation
- competitive tendering
- encouraging small businesses to enter markets
define degregulation
reducing/ removing government imposed restrictions on firms with the aim of promoting competition
what are some examples of deregulation?
- 2006 degreulation in banking sector means now rise of challenger banks such as MOnzo, Revolut
what are the benefits of degregulation?
- increased competition, lower prices and better service, improved allocative efficency
- improved dynamic efficency: as firms are more innovative and create new products
- improved consumer choice as contesbility as increased
- economic growth: increased capital investmentand new jobs
what are the problems with deregulation?
- reduced saftey and standards
- negative externalities: enviromental
what are the benefits oof competitive tendering?
- allocative efficency and innovation: as firms want to bid with the best quality and price
- cost savings for governments: more expertise
- increased competition in market means better quality services for public
define competitive tendering
when a government project is put for aution to private firms to provide the services
eg: construction jobs, school meal servives, hospital laundary services
what is private finance initiative (PFI)?
a specific type of competitve tendering for infastructure projects
what are some drawbacks of competitve tendering?
- prioritisation of profit over quality of good, leading to loss in quality
- loss of accountability: private firms are less transparent than government agencies- so hard to hold people accountable
- loss in public control
define privatisation
the sale of a state owned company to the private sector
what are the advantages of privatisation?
- profit motive to be more productivley efficenct by raising labour productivity
- gain in government revneue from sale of asset, which can help to lower government national debt
- private firms are likley to be more dyanmically efficent and increase investment
what are the main arguments against privatisation?
- government loose out on any dividend payments from future profits
- social objectives are given less importance
- not good for monopoly markets as this can lead to higher prices and loss in consumer welfare. eg: water & railway
what are the it depends on for privatisation?
- quality of regulation
- distinguish between network and final mile service
- extent to which industry actually is contestable- eg: for water industry still significant barriers to entry
define nationalisation
the process by which the government takes ownership of a private company or industry
what are the benefits of nationalisation?
- public intrest prioritised over profit
- better quality
- job security for employees
- government can get lower intrest rates than the private sector
