External Regulation of Business Flashcards
Why do business need regulating?
To address market failure and externalities
To protect public interest
How can the government intervene when markets are failing?
Provide public goods
Provide merit goods
State ownership
Direct taxation of income
Create demand
Influence supply and demand
Persuasion
Regulate through legislation
When is regulation the most appropriate?
Market imperfection - monopoly leads to inefficiency
Externalities - external costs
Asymmetric info - info inadequacy
Equity - social justice
How do businesses respond to regulation?
Entrenchment - no response
Mere compliance
Full compliance - behaviour changed
Innovation - above and beyond
What is the Porter hypothesis?
Strict environmental regulation leads to innovation
Who are the regulators of business?
Information Commissioner
Competition and Markets Authority
What is the penalty for breaching the Competition Act 1998?
Fine of up to 10% annual worldwide revenue
What is covered in chapter 1 of the Competition Act?
Collusive behaviour
Eg: fixing trading conditions, sharing markets or supply sources
When is collusion likely to occur?
Few competitors
Similar products
Communication between competitors already established
Excess capacity
Economic recession
What is covered in chapter 2 of the Competition Act?
The abuse of a dominant position
>40% market share
What is the CMA responsible for?
Investigating mergers
Market studies
Possible breaches of anti-corruption
Criminal proceedings for cartels
Protection legislation
Regulatory references and appeals
What can the CMA do?
Enter premises and demand docs
Impose fine of up to 5% revenue
Issue Competition Disqualification Orders
How can externalities be regulated?
Price regs
Tax and tariffs
Subsidies
Quotas
Standards
Fines
What methods do countries use to benefit industrialisation?
Import substitution
Export-led growth
What are some barriers to fee international trade?
Protectionism via:
Tariffs/custom duties
Import quotas
Hidden subsidies for exporters and domestic producers
Government action to devalue the currency
