4) Competition policy - MB Flashcards

1
Q

define merger…

A

two or more firms joining to form a new firm

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2
Q

define a cartel…

A

an agreement between firms on price and/or output with the intention of maximizing their joint profits (this is illegal)

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3
Q

what is competition policy?

A

a form of regulation used to protect consumers and firms from being exploited by firms with market power

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4
Q

in the UK, who investigates merges and anticompetitive behaviour?

A

Competition and Markets Authority (CMA)

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5
Q

what are the CMA’s main functions? (6 things)

A

1) Investigate mergers that could lead to a ‘substantial lessening of competition’ - if above £70m revenue and 25% UK market share
2) assess markets in which there may be competition problems
3) investigate abuse of dominant position
4) protect consumers
5) enforce the above with fines of up to 5% of worldwide revenue
6) bring prosecutions against cartels

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6
Q

when could the CMA launch a consumer awareness campaign?

A

if problems in the market are found, but no wrongdoing by firms

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7
Q

UK competition policy… the CMA to intervene in markets where…

A

1) empowers
2) the behaviour of a firm exploits its market power to act against the interests of consumers of the firm

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8
Q

if a firm abuses it’s… position to… consumers their consumer rights under law, then the CMA can…

A

1) dominant
2) deny
3) intervene with fines of up to 5% of global revenue

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9
Q

what incentivises firms to improve their behaviour? (2 things)

A
  • this fine (the fines of up to 5% of global revenue) is legally enforced by UK courts
  • the threat of fines incentivises other firms to respect consumers’ rights
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10
Q

what an the CMA do to firms that substantially lessen competition in a market?

A

they can act to block, or unwind, mergers between firms if the market share of the new firm is above 25% in the UK

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11
Q

why can the CMA block mergers, what are the benefits of this?

A

this maintains a higher level of competition in markets which helps to keep prices lower for consumers

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12
Q

what do the actions of the CMA help prevent?

A

their actions help prevent market failure by ensuring that the market mechanism can function correctly to allocate scarce resources

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13
Q

what are two advantages of competition policy?

A

1) cheap
2) threat of enforcement

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14
Q

how is competition policy cheap?

A

the CMA does not need a large budget, and the fines levied could cover the costs of operation

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15
Q

how does competition policy cause a ‘threat of enforcement’?

A

the threat of fines or prosecution by the CMA incentivises third parties to behave in a way that does not lead to these outcomes, increasing the effectiveness of CMA in correcting potential market failure

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16
Q

what are two disadvantages of competition policy?

A

1) regulatory capture
2) size

17
Q

why is regulatory capture a disadvantage of competition policy?

A

if the CMA becomes too ‘close’ to the firms that it is supposed to investigate, it can come to represent their interests instead of regulating the market

18
Q

how can the size of competition policy be a disadvantage?

A

the correct size of fine may not be clear, and the imposition of fines too small can still incentivise market failure if it’s more profitable for firms to engage in anticompetitive behaviour and pay the fine

19
Q

what does anticompetitive mean?

A

tending to reduce or discourage competition