6.1 Government Intervention Flashcards
Main aims of competition policy?
1) Eliminate cartels
2) Market Liberalisation
3) Merger Control
Govt intervention to control mergers?
1) CMA has authority to examine if over £70m or 25% share
2) Can block merger
3) Ensure consumer welfare
Examples of merger policy action?
1) CMA blocked Sainsburys & Asda
2) CMA cleared merger of Co-Op and NISA
Govt intervention to control monopolies?
1) Tax on profits
2) Forced de-mergers
3) Introduce price caps
4) Liberalisation
Arguments for price capping?
- Improve consumer welfare
- Curb monopoly power
- Improve productive efficiency
Arguments against price capping?
- Job losses
- Distorts price mechanism
- Possibly insufficient information for caps
Examples of industry regulators?
1) CMA
2) Ofgem (energy markets)
3) Ofwat (water monopolies)
Govt intervention to promote contestability?
1) De-regulation
2) Privastisation (& contracting out)
3) Nationalisation
What is De-regulation?
Lowering barriers of entry to liberalise a market
(e.g. end of Royal Mail legal monopoly)
Advantages of De-regulation?
1) Lower prices
2) Improved efficiency
3) Less pricing power
Arguments for Privatisation?
- Increased efficiency
- Govt revenue from sale
- Shareholder democracy
- Lower prices
Arguments against Privatisation?
- Social efficiency less important
- Future govt loss
- Anti-competitive practice
Benefits of contracting out?
- More competitive
- Efficiency
- Innovation
Drawbacks of contracting out?
- Sacrifice quality
- Poorer employment practices
- Possible collusion
Benefits of nationalisation?
- Social efficiency
- Lower prices
- Economies of scale
- Use for macroeconomic objectives
Drawbacks of nationalisation?
- Diseconomies of scale
- X-inefficiency
- Lack of innovation
Govt intervention to promote small business?
- Start-up Loans
- Growth Hubs
- Exporting is Great
