9 Competition Policy Flashcards
Resource allocation argument for competition
Competition will give us the ‘pareto-efficient’ allocation of resources => No-one can be made better off without making someone worse off.
“structure-conduct-performance” (S-C-P) paradigm
Market structure determines the conduct or behaviour of firms to set price, investment… leading to different competitive performance (normal profits versus abnormal profits)
Targets of competition policy
Prevent dominant market positions
Prevent anti-competitive behaviour
- Cartels, e.g. Libor scandal
- Mergers which create dominant positions
Competition Act 1998
Anti-competitive agreements became illegal:
- Fixing purchase or selling prices
- Agreeing to limit or control production or investment
- Applying different conditions to equivalent transactions
- Making contracts subject to supplementary conditions or obligations
Abuse of dominant position
- Imposing unfair prices in selling or buying. E.g. Dairy farmers and retailers.
- Limiting production, market or technical development to the prejudice of consumers.
- Applying varying conditions to transactions with other trading parties, disadvantaging them.
Criteria mergers must meet to be investigated by OFT
One or more of the enterprises involved cease to be distinct.
Merger happened in the last four months at most.
Either the firm being taken over has a UK turnover in excess of £70M or the merged firms together account for at least 25% of the industry’s UK supply.
Advantages of Enterprise Act (2002)
Recent legislation has depersonalised competition policy, by reducing powers of the Secretary of State
Process of mergers investigation is more predictable and transparent and less political
Policy has been clarified with introduction of ‘lessening of competition’ criteria
Weaknesses of Enterprise Act
Single procedure, ‘One size fits all policy’, it may be excessive for smaller mergers
Potential inconsistency between OFT &CC
In some mergers during the crisis ‘public interest’ overrode market share ….the return of political influence?
E.g. Lloyds TSB takeover of HBOS
Still room for relationship between big business and government.
E.g. Newscorp’s proposed takeover of BSkyB
How do industrial policy and competition policy differ in their purpose?
Industrial policy involves ‘local or national businesses outperforming their rivals, gaining market share and expanding profitably at their expense’
Competition policy involves ‘promoting atomistic market structures populated with small firms who operate at or near their marginal costs.’
