4.2.2 business regulation Flashcards
Who is the main competition regulator in the UK?
The Competition and Markets Authority (CMA).
What are the key aims for competition policy? [3]
- Promote competition
- Ensure markets are efficient
- Protect consumer interests
What do competition authorities investigate?
Potential mergers between two large firms and if they would dominate the market by merging. If it is deemed to create a larger firm with monopoly power it is likely to be prevented.
Why do governments intervene to control monopolies? [2]
As there is the potential for market failure and loss of consumer surplus.
How can governments prevent monopolies charging consumers excessive prices?
Might use RPI-X which is a form of price capping and is usually used for privatised industries, such as utility companies.
The value of X is the amount in real terms that a price has to be cut. RPI might be 5% in a particular year. If X is set at 2% then the firm can only increase prices by 5% - 2% = 3%.
How does privatisation improve economic efficiency?
As firms previously in the public sector can compete in a competitive market.
Economists argue the private sector gives firms incentives to operate efficiently, as they have a price incentive which nationalised firms do not have.
What is deregulation?
The act of reducing how much an industry is regulated, reducing government power + enhancing competition.
What are the benefits of regulation? [4]
- Increases consumer surplus
- Encourages firms to meet minimum quality targets, resulting in generally safe products
- Helps improve quality of life for consumers and employees
- Flexibility of labour markets in UK has resulted in lower levels of unemployment
What are the costs of regulation? [2]
- Could increase costs of firms
- If firms cannot collude, then their ability to increase their market power is limited. This could mean they have to compete on price and therefore lower potential profits
