Examples Of Monopoly Regulation

Question 1

What are the big 6 energy companies known to do

Answer 1

Tacitly collude together and restrict meaningful competition

Question 2

What is the energy price cap

Answer 2

• From jan 2019, prices for Emery on variable rate tariffs have been capped by often to protect consumers (esp on lower incomes) from large increases in energy tariffs

Question 3

What are the two ways of paying for energy

Answer 3

• fixed tariff: prices of gas and energy are fixed at a given rate for a a year and consumers pay what they use for at these rates
• standard variable rate tariff: price of gae can change during contract and generally these are of poorer value as they charge a much higher unit rate for gae and become the default tariff for consumers who do not search for best deals when fixed contract ends

Question 4

Key facts of price cap

Answer 4

• typical household saved between £75-£10 a year on energy bills until 2021given the cap
• often cap for a typical energy user increased from £1277 to £4729 a year in 2023
• government price guarantee cap is £2500/year as of April 2023 (compared to ofgem’s one of £4000 roughly)
• gov also gave large subsidies to energy retailers to cover losses due to the new gov price cap
• number of fixed tariff deals has fallen since price cap started

Question 5

Where to use energy price cap facts

Answer 5

• evaluation: unintended consequences, impact on competition, do benefits outweigh costs, is cap set too high or too low,
• regulation to promote AE

Question 6

What happened to energy retailers e

Answer 6

• wholesale energy prices rose fourfold in latter half of 2021 to 2023 but energy price cap stayed same so there were widespread bankruptcies of small energy retailers who couldn’t sustain such heavy losses
• ofegm increased price cap in line with this to about £4000 a year but then consumers couldn’t afford bills

Question 7

Describe natural monopoly in private train operating firms

Answer 7

• these firms are responsible for operation of consumers services on the track
• each company bids for a franchise, a section of the track where they are the sole provider of services, give them monopoly power

Question 8

What is the regulation in rail fares

Answer 8

• toe prevent excessive monopoly price increases each year, ORR caps yearly fare rises by RPI for peak journeys
• this is stricter regulation than the price RPI + 1% cap
• the aim of this price cap is to protect commuters from fare increases beyond RPI inflation and force companies to make efficiency savings
• but using RPI rather than CPI ensures that fares still rise considerably every year
• train fares frozen till march 2024 and gov vows the fares will rise below RPI but they said this last year and it rose by a very large amount of 5.9%

Question 9

Describe RPI-X price capping at Heathrow

Answer 9

• civil aviation authority have imposed a price cap of RPI-1.5% on landing charges at Heathrow airport given the airports dominant control of the market and potential to use its monopoly power to increase landing charges excessively which would lead to passenger fare rises
• Heathrow was by far the biggest airport in the UK with 30.1 percent of all passengers to UK airports.
• price regulation needed to protect consumer surplus and force airport to make efficiency savings to remain profitable

Question 10

Examples of performance targets and quality standards in train and airline companies

Answer 10

1) train companies and airlines both have performance targets to restrict amount and length of delays that affect consumers - must pay compensation to passengers if their train is delayed by 30 mins or more and same for airline if delayed for 2hours or more
-BUT: companies game the system and increased the scheduled length of journeys on tickets to minimise risk of paying compensation

Question 11

Performance targets/quality standards in energy companies and internet service providers

Answer 11

• internet service providers are forced to pay automatic compensation to consumers if there are faults with broadband services or sudden blackout which go unprepared for 2days or mode
• energy companies cannot cut of GAE in the Winter to vulnerable households ( elderly and those on low incomes)

Question 12

Monopoly regulation in pharmaceuticals

Answer 12

• pharmaceutical company advanz fined 100m in 2021 for monopoly abuse increase price of thyroid drugs by 6000% over a ten year period
• prices rose from £4.46 in 2006 to £259.19 by 2017 so NHS spending rose from £600000 to £30m
• GPS stopped prescribing it forcing consumers to fund own treatment

better;Advanz increased the price of thyroid tablet packs from £20 in 2009 to £248 in 2017