Gov Intervention To Promote Contestability And Competition (4)

Question 1

Strategies (4)

Answer 1

Enhance competition of small firms
Privatisation
Deregulation
Competitive tendering

Question 2

How - enhance competition of small firms (3)

Answer 2

Training and grants to new entrepreneurs
Tax incentives = enterprise investment scheme
Subsidies ​

Question 3

Pros and cons of enhancing comp. Of small firms

Answer 3

Increases innovation and efficiency​ = new firms are likely to provide new products and incumbent firms will no longer be able to be X-inefficient
May lead to inefficient = rely on subsidy

Question 4

Application of enhancing comp. Of small firms (2)

Answer 4

The Red Tape Challenge aims to decrease regulation particularly for small businesses
Enterprise Investment Schemes = provide tax relief for people who buy shares in small companies to help them grow

Question 5

Deregulation what (3+)

Answer 5

Removal of legal barriers to entry to a previously protected market to allow private enterprises to compete
More firms can enter and conduct more activities than they could before
The Deregulation Act of 2015 aims to continue deregulation

Question 6

Cons of deregulation what (2)

Answer 6

Leads to ​poor business behaviour​
Some argue deregulation of financial markets = major contributor to the financial crisis in 2008

Question 7

Competitive tendering what (2(

Answer 7

The gov can ​contract out the provision of a good or service to private companies ​
Exmaple = private firms could be employed to run hospitals = called ​Private Finance Initiatives (PFI)

Question 8

Competitive tendering create c+c how (2)

Answer 8

Gov will request competitive tenders by drawing up a specification for the good or service = inviting private firms to bid for the contract to deliver it
The firm offering the lowest price wins the contract, subject to quality guarantees

Question 9

Positives of competition tendering (3)

Answer 9

Helps to ​minimise costs for the government
Ensures efficiency by allowing for competition in the market
The private sector will have ​more experience running the market = be better managed

Question 10

Cons of competitive tendering (2+)

Answer 10

Collecting bids is ​costly and time-consuming​
The private sector may not aim to maximise social welfare in the same way the government would = use cost-cutting methods that ​reduce quality

Question 11

How does gov prevent firms being anticompetitive - collusion + predatory p. (3)

Answer 11

The Enterprise Act (2002)
Firms engaging in these practices can be fined up to 10% of worldwide annual sales
Those who organise cartels can face up to five years in prison and unlimited fines

Question 12

Exmaple of enterprise act but problems with it (2+)

Answer 12

In 2011 = 9 supermarkets in the UK were found to be fixing the price of milk and cheese products and Tesco alone was fined for £10 million
The problem = very difficult to prove overt collusion and almost impossible to prove tacit collusion

Question 13

Cons of privatisation (3)

Answer 13

Creation of monopolies
neglect of public service missions
Unequal distribution of resources

Question 14

Pros of privatisation (2)

Answer 14

Improved investment
Reduced gov spending + revenue from selling