4.1.8.7 Competition policy

Question 2

What are the main objectives of UK competition policy?

Answer 2

Promote small businesses (e.g., Red Tape Challenge).
Encourage innovation (Schumpeter’s “creative destruction”).
Prevent monopolies (protect consumer welfare).

Question 3

What is the UK’s Red Tape Challenge?

Answer 3

Government initiative to simplify regulations for SMEs.
Aims to reduce costs and stimulate job creation.

Example: Easier compliance with environmental targets.

Question 4

Why are SMEs important for competition?

Answer 4

Create jobs (e.g., 60% of UK private sector employment).
Drive innovation (challenge established firms).
Increase market contestability.

Question 5

Evaluate deregulation as a policy.

Answer 5

Pros:
Reduces costs for firms (e.g., pollution permit limits).
Encourages market entry → more competition.

Cons:
Risk of lower standards (e.g., environmental/safety).

Question 6

What is privatisation? Give a UK example.

Answer 6

Transfer of assets from public to private sector.

Example: British Airways (1987), Royal Mail (2013).

Question 7

What are the key arguments for privatisation?

Answer 7

Pros:
Profit incentive → efficiency gains.
Competitive prices (allocative efficiency).

Cons:
Quality compromises (profit maximization).
Loss of public control over essential services.

Question 8

How does competitive tendering work?

Answer 8

Private firms bid for government contracts (e.g., road maintenance).
Winner provides lowest cost + best quality.

Example: PFI hospitals in the UK.

Question 9

What are the risks of competitive tendering?

Answer 9

Cost-cutting: Lower wages/service quality.
Short-term focus: Neglects social welfare objectives.

Question 10

Explain “creative destruction” in competition policy.

Answer 10

Innovation by new firms → replaces outdated firms.

Example: Digital cameras destroying film industry.

Question 11

What are the goals of EU competition policy?

Answer 11

Prevent anti-competitive mergers (e.g., blocked Siemens/Alstom).
Ban cartels (e.g., fines for price-fixing).
Regulate state aid to prevent unfair advantages.

Question 12

How did the Royal Mail privatisation unfold?

Answer 12

2013: 70% sold via stock market, 30% retained by government.
Outcome: Initial price surges but long-term service quality debates.

Question 13

How does competition policy relate to market structures?

Answer 13

Aims to shift markets toward perfect competition (lower prices, higher output).
Counters monopoly power (deadweight loss reduction).