Govt Intervention - Controlling Monopolies: Quality Standards, Performance Targets, Controlling Mergers

Question 1

What are quality standards

Answer 1

Measures to ensure monopolists provide high quality products so that consumers aren’t exploited with low quality products

Question 2

Problems with quality standards

Answer 2

Firms may offer to self-regulate which could lead to asymmetric information

Lobbying may lead to poor quality products going unpunished by regulators

Requires political will and understanding to introduce

Question 3

What are performance targets

Answer 3

Targets set by regulators for a variety of different outputs for a firm

Question 4

What are the performance targets set by network rail for UK trains

Answer 4

Targets are given for the percentage of trains that arrive on time

Question 5

Problems with performance targets
(GIVE EXAMPLES WHERE NECESSARY)

Answer 5

-Firms can achieve the targets without actually improving (e.g. train companies changing train schedule so all trains arrive on time)

-Performance targets have to be changed frequently

-Asymmetric information as most performance data are provided by the firms

-Regulatory Capture

-Excessive administration costs

Question 6

What are the 2 reasons why the CMA would prevent/investigate a merger

Answer 6

A merger is investigated if it will result in market share greater than 25%

OR

If the merged company has a combined turnover of £70 million or more.

Question 7

What are some mergers that were prevented by the CMA

Answer 7

-Facebook and Giphy 2020
-JD and Footasylum 2018