Econ Theme 3 - Regulation +competition policy Flashcards
CMA and what they regulate
Competition + Markets Authority
-Merger policy
-Price regulation
-Profit regulation
-Performance targets/quality standards
Merger Policy
Block merger/acquisitions if…
1. combined market share over 25%
e.g. blocked 3 and O2 merger
- too much power/ high prices
- Combined annual turnover over £70m
e.g. Virgin and David Lloyds merger placed on investigation but not blocked
Price Regulation
Limits price increases
Price Cap
- RPI + K
RPI = Inflation (firms can increase prices in line with inflation)
K = SNP to invest (improving efficiency)
- RPI - X
X = efficiency gains means firms will make a loss unless they become more efficient
Regulatory Capture
a regulator begins to favour the company they’re regulating
e.g. set quality standards too low
Profit Regulation
firms’ profits are taxed at
100% above a certain limit
But ineffective cos…
removes profit incentive - less efficient
Encourages investment cos…
They will reinvest extra profit and improve quality of good so gov. doesn’t steal profit
Performance targets and quality standards
Performance - targets for firms to meet, too ensure they’re providing a top quality service
e.g. NHS - hospitals have to respond to emergency patients in less than 4 hrs
Quality - Standards of quality firms have to meet to sell g/s.
e.g FSA - standards on food
Increasing contestability
- deregulation
- Privatisation
- Stopping anti-competitive practices
- helping small business
Deregulation
Regulations are remotes to lower barriers to entry
e.g. Europe’s taxi industry (no more geography test)
- lower prices
- better customer service
- increased efficiency
Privatisation
gov. transfers ownership of a public sector firm to the private sector - profit incentive
e.g British Airways
- lower prices
-improved quality
-increased efficiency
Competitive Tendering
outsource jobs to the private sector
- job contract is written
- private sector bids for it
- gov. awards a firm the contract
e.g. NHS catering
private sector firms will undercut each other’s prices and offer better quality. government can make sure it’s getting the best deal - saving money, and increasing quality.
Anti-competitive practices
anything a firm might do, to restrict competition
-predatory pricing
-price collusion
-vertical integration
CMA can:
Set a fine up to 10% of annual revenue
Sentence CEOs to jail time
Name and shame the firm publicly
Helping small businesses grow
Access to loans
-low I.R.
R&D tax breaks
-North Carolina $235m in energy tax break
Subsidies
-UK gave £5000 subsidies for cyber security
Nationalisation
private sector transfers ownership of a private sector firm to the government.
-Sweden nationalised alcohol market
