Government Intervention in Product Markets

Question 1

Who are some Competition Regulators?

Answer 1

• EU = European Union Competition Commission
• UK = Competition and Markets Authority (CMA)
  –> e.g. Block of Broadcom acquisition of VWware in Dec 2022

Question 2

Responsibilities of CMA / Competition Regulators

Answer 2

• Control Mergers –> f merger gives over 25% market share e.g. blocked ASDA + Sainsbury
• Control Monopolies –> e.g. Quality standards, Price regulation for necessities e.g. rail, energy or sewage
• Promote Competition + Contestability –> subsidies for small business, privatisation,
• Protect employees / suppliers –> Nationalisaton, restriction on monopsony / monopoly powers

Question 3

Positives + limits of Government Intervention in Product Markets?

Answer 3

Ad
- Prices and choice –> Prices reduces, ↑Consumer Surplus –> ↑Competition –> ↑Choice
- Profit –> ↓Super-Normal Profits
- Efficiency –> ↑Competition –> Incentive to reduce costs + reduce waste
- Quality –> ↑Competition –> incentive to improve design + quality

Limits
- Asymmetric information –> difficult for authorities to regulate markets - businesses likely to know more about market
- Regulatory capture –> regulated industries able to influence regulator –> regulator acts in favour of business not consumer –> form of government failure