3.6.1 Government Intervention Flashcards
Who are the main regulatory bodies in the UK and outline their powers and roles?
CMA - The UK’s primary competition and consumer authority. It is an independent non-ministerial government department. It investigates mergers. Its role is to protect consumer interests.
It can fine up to £30,000 for non-compliance with investigation.
What are the main 3 pillars of the Competition Act 1988?
- Anti-competitive agreements
- Cartels
- Abuse of a dominant position
What must be the combined market share of two firms who are planning to merge, before the CMA will automatically undertake an investigation?
25% or more
What can the CMA do if they believe a merger is against the consumers’ interest?
They can prevent mergers, or they can put conditions upon it, such as requiring one of the firms to sell a part of the business.
What can the CMA do if a firm has violated the Competition Act 1988?
- Apply fines of up to 10% of global turnover for 3 years.
- Fine up to £30,000 for non-compliance
What are the pros and ons of government intervention?
Advantages are that it helps to mitigate the negative effects of monopoly
Disadvantages are that it can lead to government failure and sometimes there are benefits of a monopoly, which would not be realised when monopolies are regulated
Define privatisation
When an asset is transferred from the public sector into the private sector e.g. the selling of shares in previously owned enterprise such as the Royal Mail.
Name 5 industries that have been privatised
- Water
- Gas
- Electricity
- Rail
- Post
Define competitive tendering
Introducing competition into the provision of public services e.g. outsourcing
Define deregulation
Removal of restrictions on the provision of a good/service
Define franchising and licensing
Allowing pre-approved private companies to provide goods and services previously only provided by the state
Identify the 5 advantages of privatisation
- Improved efficiency
- Increased competition
- Raises revenue for the government from the sale of the public sector asset
- Widening of share ownership
- Removal of government interference
Identify and explain 4 disadvantages of privatisation
- Natural monopolies
- Externalities
- Loss of economies of scale
- Redistribution of wealth
- Job losses
Why do privatised monopolies need an industry regulator?
This is because without one they will exploit consumers and make huge super-normal profits, through charging higher prices, and offering a poor quality service
Identify 4 industry regulators
- OFCOM
- OFWAT
- ORR
- OFGEM
Identify the 4 main methods of intervention used by the industry regulators
- RPI - X
- RPI + K
- Profit regulation
- Service Level Agreements
How does the government promote contestability in markets?
By deregulating markets, this makes it easier for a new firm to enter the market and take market share from the incumbent firm. They can also subsidise new firms from entering a market or provide more licenses so that there is space for more firms.
How does the government act to restrict monopsony power on firms and employees?
- On firms, the CMA are able to investigate and fine firms who abuse monopsony power.
- On employees, the government prevents wages from falling below the NMW, this means that monopsonists cannot pay their workers below this amount. There is also anti-discrimination policy which means that a monopsonist must treat all their workers fairly.
Define nationalisation
When there is a transfer of ownership by the government.
