Government intervention to promote competition Flashcards
What is the aim of a government’s competition policy?
enhance efficiency by promoting competition and protecting consumers
What is the key potentive negative from a merger?
reduced competition / potential monopoly, leading to welfare loss by restriction on output and increased price
What is the key potential positive from a merger?
economies of scale
In the UK, which organisation oversees competition policy?
Competition and Markets Authority (CMA)
What are the five main functions of the CMA?
- investigating mergers that could potentially lead to substantial lessening of competition
- investigating markets to assess suspected competition issues
- antitrust enforcement by investigating possible breaches of UK or EU competition law
- taking action against criminal cartels
- consumer protection
When will the CMA investigate a potential merger?
- combined assets >£70m worldwide, or
- combined UK market share > 25%
Which supermarket takeover was investigated in 2003 in UK and what was the outcome?
- Number of UK supermarkets attempted to take over Safeway.
- Only acceptable bid was from Morrisons, as it evened out the balance among larger supermarkets so likely to increase competition.
Why was merger of Sainsburys and Asda in 2018 blocked by CMA?
competition expected to reduce as both already had high market share (31% between them, compared to 28% Tesco)
What is deemed to be the relevant market in a competition investigation?
market defined so no major substitutes omitted but no non-substitutes included
Why did the CMA block the merger of 21st Century Fox and Sky plc?
It would give Rupert Murdoch (owner of 21CF) too much control over UK media.
Name four markets with natural monopolies.
railways
gas supply
electricity generation
water supply
What tends to make a market a natural monopoly?
high fixed costs
What rule do Ofwat (water) and Ofgem (gas & electric) apply?
RIIO (Revenue using Incentives to deliver Innovation and Outputs), ie incentives to improve quality rather than focus on costs; if don’t meet quality standards then they are fined
Why might a government deregulate a market?
to encourage competition and therefore encourage innovation and efficiency
Define contracting out.
public sector pays private firm to provide good or service
Define competitive tendering.
process by which public sctor calls for private firms to bid for a contract for provision of good or service
What does PPP stand for?
public-private partnership, ie arrangement where a service or venture is funded and operated through partnership of government and private sector
What is PFI or PF2?
Private Finance Initiative, ie arrangement by which private sector designs, builds, finances and operates an asset and associated services for public sector in return for annual payment linked to its performance. (PF2 is later version with different process.)
What is privatisation?
transfer of publicly owned enterprise into private ownership
What is nationalisation?
transfer of privately owned enterprise into public ownership
What is regulatory capture?
when regulator comes to represent the industry’s interests rather than regulating it
