Competition Policies

Question 1

Define Competition

Answer 1

Process of rivalry between firms striving to gain sales + profits
e.g. Product Differentiation amongst Coffee chains
Flights + Holiday offers

Question 2

What is the main driver and the outcome of Competition?

Answer 2

Main driver is Self-interest- Profits

Main outcome is Beneficial to Society- lower prices, better G+S etc.

Question 3

What 3 things does Competition promote?

Answer 3

Efficiency + Innovation
Economic Growth- Private-sector development
Consumer Welfare gains- Lower prices + better products

Question 4

Assumptions for Perfect Competition

Answer 4

Many Producers + Consumers
Homogenous Products
Perfect Information + motivated by desire to Max. Profits + Satisfaction
Free Entry + Exit to Market- No Barriers

Question 5

How do Monopolies affect prices?

Answer 5

Change the Highest possible price

Question 6

Show Abnormal profit on a Monopoly diagram

Answer 6

AR = D
MR
MC
Qm is where MC = MR, but Pm is at AR/D

Question 7

Under Perfect Competition, what is the slope of MR?

Answer 7

Flat- Sticky prices

MR is constant at all Quantities

Question 8

What are the 2 main responsibilities of Competition Authorities?

Answer 8

Investigate Anti-competitive behaviour

Adjudicate behaviour

Question 9

What are the 3 Main Areas of Competition Policy?

Answer 9

Anticompetitive Agreements- e.g. Price fixing between competitors
Abuse of Dominant position- e.g. Charging unfair prices, Predatory prices
Merger

Question 10

What are the 2 types of Anticompetitive agreements?

Answer 10

Horizontal + Vertical Agreements

Question 11

What are Horizontal Agreements?

Answer 11

Firms in same business agreeing NOT to compete
Cartel Agreements- bid rigging
-output restrictions
-price fixing
-market allocation

Question 12

What are Vertical Agreements?

Answer 12

Supplier-Customer relationship

• Exclusive supply/purchase agreements
• Tie-ins
• Resale Price maintenance

Question 13

What are the 2 main practices of Abuse of Dominance?

Answer 13

Exploitative Practices

Exclusionary Practices

Question 14

What are Exploitative practices?

Answer 14

Firms exploit customer

e.g. Excessive pricing, Discrimination, tied-selling

Question 15

What are Exclusionary practices?

Answer 15

Practices aimed at driving Competition out of market

e.g. Predatory pricing, refusal to deal, hoarding raw materials

Question 16

What are Anticompetitive Mergers + acquisitions?

Answer 16

Some Mergers may Decrease competition by Increasing Dominance

Question 17

What are the 3 types of Mergers?

Answer 17

Horizontal Merger
Vertical Merger
Conglomerate Merger

Question 18

What are Horizontal Mergers?

Answer 18

Mergers between competitors- firms at the same level of the supply chain
Most harmful to Competition

Question 19

What are Vertical Mergers?

Answer 19

Merger between firms in a supplier-customer relationship

Question 20

What are Conglomerate Merger?

Answer 20

Merger between firms in different industries

Can lead to accumulation of large Financial resources- ability to abuse

Question 21

What are the 3 steps in Competition Policy?

Answer 21

1. A complaint
2. Own-initiative Investigation is opened
3. Leniency application from one participant in a Cartel submitted

Question 22

What 6 things are Analysed in an Anticompetitive Case?

Answer 22

1. Abusive Conduct- by companies
2. Relevant Market- Market definition to identify boundaries of Competition between firms- establishes a framework within which Competition is applied
   Ped + Xed are Key tools
3. Dominance Position- Info regarding Market power to assess dominance- Market Share is usual indicator
4. Barriers to Entry- ease of entering the market
5. Legal Assessment- what the anticompetitive effects?
6. Comp. Authority Actions- decision on whether there is infringement