Government Intervention 3.6.2 Flashcards
What are the different types of Monopoly regulation
Merger Policy
Price Regulation
Profit Regulation
Performance targets and quality standards
Privatisation
Deregulation
Why would the CMA investigate a merger
If merging firms have over 25% market share
If merging firms have a combined turnover over £70m
What are the 2 types of price caps
RPI + K
RPI - X
Define regulatory capture
Regulators begin to favour the company they’re regulating
What is Profit Regulation
When government takes 100% of a firms profits in tax after they have hit a certain amount of profit
How profit regulation can encourage firms to invest in better capital
Encourages firms to reinvest extra profit into the company and improve their quality
What are performance targets and quality standards
used to improve the performance and quality of goods and services
What methods are used to promote contestability
Deregulation
Privatisation
Removing Anti-Competitive practices
Helping Small businesses grow
Competitive Tendering
Why is deregulation used to promote contestability
Removes barriers to entry and allow new firms to enter the market
Why is privatisation used to promote contestability
Incentivises firms to cut costs and maximise profits which improves efficiency
Define competitive tendering
When the government outsources specific jobs to the private sector
How does competitive tendering ensure the government are getting better quality Goods and services
The private sector will bid against each other and offer better quality
Define Anti-Competitive Practices
Anything a firm might do to restrict competition
List the Anti-Competitive practices
Predatory Pricing
Price collusion
Vertical Integration
How do the government help small businesses grow
Access to loans
R&D Tax breaks
Subsidies
Define nationalisation
Private sector transfers ownership of a firm to the government
After nationalisation what will the government do to the price of goods and services
Set P=MC, allocatively efficient, maximising welfare
How do the government protect suppliers and employees
Restrict Monopsony power
Nationalisation
Limits to government intervention
Regulatory Capture
Asymmetric information
Aims of government intervention
Prevent excess pricing
Ensure G+S are of quality
Promote tech advances
Promote competition
Deregulation pros
Allocative efficiency
Productive efficiency
X-inefficiency
Dynamic efficiency
Privatisation pros
Gov rev
Allows new investment
Privatisation and deregulation cons
Firms may not enter industry
Loss making goods will not be produced
No dynamic efficiency
Market failure
Increase gov debt
Nationalisation Pros
More allocatively efficient
Economies of scale
Nationalisation Cons
Lack incentive to minimise costs
Diseconomies of scale
Lack of supernormal profit
Costly
