Competition & Privatisation Flashcards
What is the main aim of competition policy
The main aim is public interest
More aims of competition policy are to promote competition; make markets work better and contribute towards improved efficiency in individual markets and enhanced competitiveness of UK businesses.
Why are governments concerned with abuse of monopoly power
Abuse of monopoly power is likely to be against public interest. Therefore, governments are concerned to intervene and protect the interests of the consumers.
What type of anti-competitive practices do the government regulate
Abuse of monopoly power
Price fixing (competitors agree to increase prices together)
Agreements to split up the market (collusion)
What is the main competition regulator
The main competition regulator in the UK is the Competition and Markets Authority (CMA)
Describe the UK Merger policy
Any potential merger must give details to the OFT, If the OFT is concerned they can refer the merger to the competition commission which can examine whether the merger is in public interest
If a merger leads to a significant increase in market share, either in local or national markets, the new firm could exercise monopoly power.
Mergers can cause higher prices and inefficiencies, less investment and quality to products, less choice for consumers.
Why is competition desirable
Low prices for consumers
Creates increased innovation of products
Increased investment
More consumer choice
Why is competition non-desirable
Potential for anticompetitive actions
Potential for environmental damages if not in businesses considerations
Destructive price wars (constant lower in prices damages business)
Why is contestability desirable
Promotes healthy competition
More consumer choice
Incentive to invest
Incentive to be productive
Why is contestability non-desirable
Potential for market failure (constant drive to remove new firms)
Constant new threats to existing firms in the market
Constant price instability (not stable)
Define privatisation
Privatisation is the transfer of ownership of an asset from the public sector to the private sector.
What are the ways privatisation exist
There are more ways that privatisation exists such as
The government contracting out services by paying private firms to carry out work on its behalf.
Competitive Tendering – Private firms bid to gain a contract to provide a service for the government.
What are the effects of privatisation on competition
Privatisation creates competition as privatisation removes monopoly characteristic from the market meaning there is less barriers to entry meaning more competitors
Privatisation introduces profit motives and market discipline, encouraging firms to adopt best practices and invest in technology and innovation to gain a competitive advantage.
Privatisation is often accompanied by regulatory reforms aimed at promoting competition, preventing anticompetitive behaviour, and ensuring consumer protection.
How does privatisation affect government revenue and income
Finally privatisation will increase the government tax revenue
Also the privatised firm may cause income inequality benefiting wealthier individuals as they may choose to set up in more profitable areas, leaving less profitable areas to become worse off.
How does privatisation affect efficiency
Privatisation increases efficiency as private firms focus on efficiency to gain a competitive advantage, such as cutting costs, new technology etc.
How does privatisation affect prices
Privatisation may cause prices to fall due to being more efficient by investments
On the other hand they may increase prices due to wanting more profits.
