Government Intervention -unit 3 Flashcards
What is the aim of competition policy
Ensure actions that prevent, restrict or distort competition are blocked
When is a merger likely to be blocked
When the merge leads to a substantial lessening of competition
- results in 25%+ market share for one firm
- combined takeover of £70million+
Why was the Lloyds tsb and HBOS merger not blocked when it resulted in Lloyds banking group having 35% of market share
Provided a substantial benefit to the nation
Why do governments intervene in markets
To maintain competition
Give examples of anti competitive practices
Collusion Acting as a cartel Fixing prices Predatory pricing Limit pricing
What does PFI stand for
Private finance initiative
What does PPP stand for
Public private partnership
What do PFI and PPPs do
Government partnerships with the private sector to undertake major infrastructure projects
What is regulation
Direct control by government of firms
Used when market forces are judged to be inadequate as a means of protecting the consumer interests
What state owned monopolies were privatised in the 80’s and 90’s
British Gas
British telecom
Electricity/water industries
Why set a price cap
To stop firms overcharging for their products as they are a monopoly, meaning there is no competition
How is a price cap made
Rpi - X
(X=efficiency gains the regulator thinks can be achieved by the firm)
Rpi + K
(K=additional capital spending that the regulator has agreed is necessary)
Advantages of price capping
Allows firms to keep profits made through greater efficiency
Negatives of price caps
If the regulator underestimates the efficiency of a firm, then the firm can produce excessive profits
What is rate of return regulation
Alternative to price cap
Allows firm to make “x” amount of profit, then excess profit is taxed at 100%.
