Competition Policy Flashcards
What are the two key principles of modern competition regulation
Anti-monopoly law and regulation - don’t allow for abuse of market power and promote fair competition
Consumer welfare - ensure markets benefit consumers via price quantity and choice. Monopoly may be acceptable as long as welfare is maximised
What are the three main types of collusion
Dividing up and sharing markets- agreeing not to go after a competitors customers
Bid-rigging and discussing tenders- agreeing to bid overly high on contracts
Price-fixing - competitors agree to certain prices
What is the problem with greater price transparency
Although consumers can benefit from choosing the lowest prices, it makes collusion easier as firms can quickly see when their competitors prices change
How does UK law define excessive pricing
When pricing is deemed to be unfair based on price and cost data that CMA collects from firms. Profit in and of itself isn’t unlawful
How does CMA combat predatory pricing
By applying the following tests:
If pricing is below AVC (shut-down price), pricing is abusive.
If pricing is between ATC and AVC this is a weaker test and harder to regulate
What are some behavioural barriers to entry the CMA are aware of
Predatory pricing
Tying- when a supplier sells one product only if bought with another product eg Microsoft tying internet explorer with the windows OS
Price squeeze
What is the threshold for CMA involvement in mergers
When combined firms have revenue of at least £70 million and 25% share of the market
What are the risks of structural remedies eg requirements to divest (sell off certain parts of a business)
Lowers CW as merged firms may have been able to exploit EoS. For sectors in decline, with falling market demand, mergers might be particularly important.
Less incentive for firms to grow and innovate
What are the risks of behavioural remedies by limits merged entities ability to exploit market power
Switching costs may be prevented by stopping firms from forcing long term contracts on customers, but this means firms can’t extract surplus from customers with inelastic PED, which could have meant lower prices for other consumers.
Market power can lead to reliable supply as they can get through crises
