Competition Policy

Question 1

What is competition policy?

Answer 1

A government policy enacted through legislation to reduce market abuse and increase market efficiency by intervening in markets generating excessive monopoly power

Question 2

What is the overarching objective of competition policy?

Answer 2

To act in the consumer interest against monopoly power

Question 3

What are 5 main objectives of competition policy?

Answer 3

• To prevent or reduce monopoly price
• Promote competition (make the market contestable)
• Ensure quality and standards of goods
• Regulation of monopoly
• Promote technical innovation

Question 4

When should a market be regulated and when should it be liberalised/ remove barriers to entry?

Answer 4

Liberalise markets if it does not lead to government failure, unintended consequences and if the market is not a natural monopoly (barriers are artificial)

Regulate a market if it is a natural monopoly

Question 5

Why might it be bad to liberalise a market?

Answer 5

If artificial barriers like rules and regulations are removed it can lead to unintended consequences, e.g. environmental regulations being removed leading to pollution

Question 6

Why is regulation second best to liberalising a market?

Answer 6

Regulation in theory always leads to government failure, competitive free markets lead to the best outcomes (allocative efficiency, productive efficiency etc). Government’s are unlikely to find the allocatively efficient price and output to set

Question 7

In which circumstance would the possibility of government failure be minimal?

Answer 7

When market failure is significant as the government is less likely to make the market operate worse.