6 - competition policy and contestable markets

Question 1

incumbents

Answer 1

the existing firms in the industry

Question 2

contestable market

Answer 2

where there is free entry and free exit of other firms

Question 3

competition policy

Answer 3

methods that the UK government and EU authorities use in order to make markets more efficient

Question 4

restrictive trade practices

Answer 4

methods used by firms to reduce competition in a market

Question 5

competition commission

Answer 5

a government organisation responsible for implementing policy in relation to monopolies

Question 6

dominant market position

Answer 6

where a firm, or group of firms working together have a market share of 40%

Question 7

office of fair trading

Answer 7

a government organisation responsible for implementing aspects of competition policy

Question 8

public interest

Answer 8

a term used to cover the public’s right not to be exploited by firms abusing monopoly power

Question 9

nationalisation

Answer 9

state control of firms

Question 10

privatisation

Answer 10

sales of government owned assets to the private sector

Question 11

deregulation

Answer 11

the process of removing government controls from markets

Question 12

natural monopoly

Answer 12

a firm that can theoretically gain continuous economies of scale and where it is thus uneconomic for more than one firm to supply the market

Question 13

enterprise culture

Answer 13

a way of life that emphasises the importance of individuals who create their own businesses and create wealth

Question 14

public-private partnerships (PPPs)

Answer 14

partnerships between the private and public sectors to provide public services

Question 15

private finance initiative (PFI)

Answer 15

a form of public-private partnership in which private sector firms undertake the bulk of the work

Question 16

regulation

Answer 16

setting rules and controls that restrict market freedom

Question 17

regulatory capture

Answer 17

where agencies set up to regulate industries or firms can be captured or influenced by the firms they are intended to oversee

Question 18

goodwill

Answer 18

the value of a firm in excess of its asset value including reputation, brand name, trade contacts and general expertise

Question 19

hit and run entry

Answer 19

where new firms enter the industry, cream off some of the supernormal profits of the incumbents and then exit