6.4 Micro

Question 1

What is competition policy?

Answer 1

UK competition policy involves measures to enhance competition between firms in order to improve economic outcomes for society through:
Legislation, Privatisation, Deregulation, Prevention of mergers
Various actions to prevent restrictive trade practices and abuse of monopoly power
Competition policy is government policy which aims to make markets more competitive

Question 2

What four areas is competition policy focussed on?

Answer 2

Monopolies
Mergers
Restrictive trading practices
Promoting competition

Question 3

What are contestable markets?

Answer 3

Markets with no barriers to entry or exit

Question 4

How can competitions policy be achieved?

Answer 4

Curtailing monopoly power and protecting competitive markets
Restricting mergers and prohibiting cartels
Improving the way in which markets work e.g. providing greater information
Creating fairness in markets for both firms and consumers so that firms don’t abuse their dominant market position but are able to make acceptable profits that will drive innovation and increases in productivity
Increasing productive, allocative, static and dynamic efficiency

Question 5

What might competition policy do?

Answer 5

Reduce creative destruction
The reduction of large economies of scale
Lead to government failure

Question 6

What benefits lead to the success of competition policy?

Answer 6

Lower price
Improved quality
Increased choice
Innovation
Competitive advantage