Intervention To Promote Competition And Contestability Flashcards
Example of intervention to promote competition and contestability
Deregulation of an industry
Rules on predatory pricing
Policies on international trade
What does de-regulation of markets involve
Attempts to liberalise a market to encourage new entrants to act as challengers to established firms
Techniques often used with the de-regulation of markets
Lowering some of the statutory barriers to entry
UK example of deregulation
Ending the legal monopoly of the Royal Mail - fully privatised in 2013
What is a big challenge for intervention in some industries
That the market has some / all of the characteristics of a natural monopoly
What is one approach to splitting up an industry monopoly - to encourage a natural monopoly
Split into a core ‘network’ service & the ‘final mile’ service service to the consumer
Two types of competition - the U.K. mail industry
- Access competition - operator collects mail from the customer
- End-to-end competition - operator other than the Royal Mail undertakes the entire process
How does technology reinforce competitive pressures in markets
- retailers and e-retailers
- contestable parcels industry
What happens as a result of deregulation and market liberalisation breaking down barriers to entry
Market supply should be boosted, bringing down prices for consumers
What is increased competition and heightened contestability associated with
Improved productive efficiency, allocative efficiency and dynamic efficiency
What does competition limit
Firm’s ability to restrict output and raise prices - forcing firms to charge a Roche closer to marginal cost, allocative efficiency is improved
What happens if firms have less pricing power
They are more likely to seek profitability through cost reduction, boosting productive efficiency and reducing x-inefficiency
What creates dynamic efficiency
Greater capital investment and productivity
