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Economics Unit 3 > Competition policy and contestable markets > Flashcards

Competition policy and contestable markets Flashcards

1
Q

What are incumbents?

A

The existing firms in the industry

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2
Q

What are contestable markets?

A

Where there is free entry and free exit of other firms

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3
Q

What is competition policy?

A

Methods that the UK government and the EU authorities use in order to make markets more efficient

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4
Q

What are the strands of CC? (4)

A

Monopolies
Mergers
Restrictive trade practices
The promotion of new competition

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5
Q

What are restrictive trade practices?

A

Methods used by firms to reduce competition in a market

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6
Q

Who are the competition commission?

A

A government organisation responsible for implementing policy in relation to monopolies

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7
Q

What is a dominant market position?

A

Where a firm, or groups of firms, have a market share of 40%

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8
Q

What are the objections of a dominant market position? (3)

A

Productive and allocative inefficiency

X-inefficiency

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9
Q

Who are the office of fair trading?

A

A government organisation responsible for implementing aspects of competition policy

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10
Q

Who are the department of trade and industry?

A

The government department responsible for British industry

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11
Q

What is public interest?

A

A term used broadly to cover the public’s right not to be exploited by firms abusing monopoly power

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12
Q

What are the approaches available for the CC to deal with the problem of a monopoly? (6) (CPTNPD)

A 
Compulsory breaking up
Price controls
Tax on excessive profits
Nationalisation 
Privatisation 
Deregulation
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13
Q

What is nationalisation?

A

State control of firms

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14
Q

What is privatisation?

A

Sales of government owned assets the the private sector

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15
Q

What is deregulation?

A

The process of removing government controls from markets

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16
Q

Why is nationalisation supported? (2)

A

Economies of scale = lower costs

No profit motive

17
Q

What is a natural monopoly?

A

A firms that can gain continuous economies of scale and where it i thus uneconomic for more than one firm to supply the market

18
Q

What are the advantages for privatisation? (3)

A

Promotes efficiency
Raises revenue for government
Promotes competition

19
Q

How does privatisation promote efficiency?

A

Profit motive = incentive to reduce costs = more dynamic efficiency

20
Q

How does privatisation promote competition?

A

Breaks up monopolies

21
Q

How does privatisation raise revenue for the government?

A

Selling former nationalised assets provides a short term source of revenue

22
Q

What are the disadvantages of privatisation? (2)

A

Worse allocation of resources, produce at MC=MR

Externalities

23
Q

What is a public-private partnership? (PPP)

A

Partnerships between the private and public sectors to provide public services

24
Q

What is a private finance initiative? (PFI)

A

A form of public-private partnership in which private sector firms undertake the bulk of the work

25
Q

What is an advantage of a PFI?

A

The private sector partners may have a greater expertise in project management

26
Q

What is regulation?

A

Setting rules and controls that restrict market freedom

27
Q

What is the aim regulation?

A

To try to achieve the social optimum level of production and consumption

28
Q

How does deregulation promote competition and market contestability?

A

Through the removal of barriers to entry

29
Q

What is regulatory capture?

A

Where agencies set up to regulate industries or firms, can be captured or influenced by the firms they are intended to oversee

30
Q

What does free entry assume?

A

All firms have access to the same technology, thus have the same cost curves

31
Q

What is hit and run entry?

A

Where new firms enter the industry, cream off some of the supernormal profits of the incumbents and then exit

32
Q

What are the assumptions of a contestable market? (6) (FNFSPH)

A 
Freedom of entry and exit 
No one firm has a high market share 
Firms compete
Short run profit maximisation MC=MR
Perfect knowledge 
Homogeneous products
33
Q

What is a benefit of a contestable market?

A

Reduces the likelihood of government failure

34
Q

What are the criticisms of a contestable market? (2)

A

The level of technical knowledge

Incumbents protect themselves by taking out patent

Economics Unit 3 (15 decks)

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