6.3 Competition policy

Question 1

What is competition policy?

Answer 1

Competition policy involves measures to enhance competition between firms in order to improve economic outcomes for society

Question 2

What methods are used to enhance competition policy?

Answer 2

• Legislation
• Privatisation
• Deregulation
• Prevention of mergers
• Various actions to prevent restrictive trade practices and abuse of monopoly power

Question 3

What 4 areas are competition policy focused on?

Answer 3

Monopolies
Mergers
Restrictive trading practices
Promoting competition

Question 4

What are some potential negatives effects of competition policy?

Answer 4

• Reduce creativity
• Stop some firms from realising huge economies of scale (which could have been passed on to the consumer)
• Lead to government failure as the authorities create distortions in the market leading to inefficiencies

Question 5

What are the benefits of competition policy?

Answer 5

• Lower prices
• Improved quality
• Increased choice - increased range of products
• Innovation - productive and allocative efficiency will occur