Competiton Policy Flashcards
contestable market d
where there is free entry and exit of other firms
competition policy d
methods that the UK government and EU authorities use in order to make markets more efficient
restrictive trade practices d
methods used by firms to reduce competition in a market
competitive commission d
a government organisation responsible for implementing policy in relation to monopolies
what are the four main strands of current competition policy
monopolies
mergers
restrictive trade practices
the promotion of new competition
dominant market position d
where a firm, or group of firms working together, have a market share of 40%
when and in what act was the abuse of a dominant market position outlawed
the competition act 1998
what are the two government agencies responsible for implementing policy concerning monopolies
office of fair trading (OFT) and the Competition Commission (CC)
what is the office of fair trade
a government organisation responsible for implementing aspects of competition policy
what indicators does the OFT use to monitor the UK economy for evidence of monopoly abuse
concentration ratios
evidence of price discrimination and leadership
merger activity
profit margins
what happens if the OGT discovers evidence of exploitation of a dominant market
refers the firm(s) to the CC who have legal powers to order firms to cease particular trading practices
what are the things the CC can do to deal with the problem of monopoly
compulsory breaking up price controls taxes on 'excess' profits (windfall tax) nationalisation privatisation deregulation
what does contestable market theory say
monopolies are defined by how easy or difficult it is for new firms to enter (not vital to have actual competition, the threat of entry is enough)
who surveys merger activity
the OFT
what happens if the OFT finds a suspicious merger
it is passed on to the CC for investigation
what are examples of restrictive trade practices
charging discriminatory prices
resale price maintenance (manufacturers fix the price that retailers sell at)
refusal to supply particular outlets
‘full-line forcing’
examples of privatisation
British gas, British telecom
what are the other types of privatisation
deregulation (bus services)
state of local authority assets
competitive tendering of services (introducing competition, franchising and licensing (regional rail services))
what are the advantages of privatisation
promoting efficiency
raises revenue for government
promoting competition
reduce size of public sector
what are the disadvantages of privatisation
worse allocation of resources
externalities may be ignored
closure of loss-making services (suburban bus routes)
short-termism
public-private partnerships (PPPs) d
partnerships between the private and public sectors to provide public services
regulation d
setting rules and controls that restrict market freedom
examples of public-private partnerships
street cleaning, prisons, schools
example of self-regulation
British Medical Association
regulatory capture d
where agencies set up to regulate industries or firms can be ‘captured’, or influenced by the firms they are intended to oversee
example of deregulation
access to BT’s distribution infrastructure given to competitors, mail services
what does free exit assume
there are no sunk costs and that when the firm leaves the industry it can fully recover all of its previous investment
the lower the ______ _______ of entry, the more contestable the market
sunk costs
what is a good example of a contestable market
the bus industry
what is the point of productive efficiency
lowest point on ATC where AC = MC
for contestable markets when can potential entry be as effective as actual entry
if entry can be easily accomplished, if existing firms take potential entry into account when making price and output decisions
what are the assumptions of contestable market theory
low barriers to entry no-one has significant share of marketplace no collusion firms are short run profit maximisers perfect knowledge homogeneous
how had the bus industry become less contestable
the industry has now become a six-firm oligopoly which has created entry barriers
what are the criticisms of contestable market theory
limited application
level of technical knowledge required to enter industry high
incumbents protect themselves with patents
ignores potential aggressive actions of incumbents who may make it known
