Market regulations

Question 1

describe competition policy

Answer 1

• enforced by CMA and specific regulatory bodies like ORR

Question 2

aims of comp policy

Answer 2

• prevent excessive pricing= protect consumer interest
• promote comp= deregulation etc
• ensure qual, standards and choice for consumers
• promote tech innovation
  = re-invest profits made into firm

Question 3

when is comp policy needed

Answer 3

• cartel agreements
• investigate mergers greater than 25% market share

Question 4

describe monopoly regulation

Answer 4

a set of rules and restrictions that governments impose on monopolies to prevent them from abusing their power and to ensure fair competition

Question 5

adv price regulation

Answer 5

• can’t increase price depending on inflation
  = promote incentives of efficiency saving
  = allow profits made to increase capital investment

Question 6

disadv of price regulation

Answer 6

• may be information issues when generating the value of k
  = based on assumption regulators have perf info
  = if x or k is too low, won’t get intended outcomes= no comp outcomes
• costly and time consuming for regulators to enforce and workout logistics etc
  = high opportunity cost of taxpayers money

Question 7

adv quality control regulations

Answer 7

• process of testing and measuring products and services to ensure they meet standards= ensure that firms do not exploit their customers​ by offering poor quality
  = For example, the Post Office has to deliver letters on a daily basis to all areas and electricity generators are forced to have enough capacity to prevent blackouts
• measure train delays, NHS wait times etc
  = meet consumer demands

Question 8

disadv quality control regulations

Answer 8

• cld lead to unintended consequences e.g. many workers may take short cuts = companies may ‘game the system’
  = train drivers may extend journey times so they meet aim to decrease delays

Question 9

adv profit regulation

Answer 9

• gov covers costs and adds a % return in capital employed
• aims to ​encourage investment ​and prevents firms from setting high prices
• high rate of return of capital employed set by regulatory bodies covers risk of investment and decreases start up costs of firms
  = lead to high LR profit for firms and economy

Question 10

disadv profit regulation

Answer 10

• there is asymmetric info as a monopolist firm may over-report costs of capital employed to gov in order to increase rate of return
  = increase profits
• create incentive for monopolists to over-employ capital and not manage costs as they know they’ll be covered by rate of return
  = creates distortion of incentives

Question 11

evaluation of monopoly regulations

Answer 11

• depends on level of info that regulators have
  = no guarantee that they know actual profit levels made by firms
  = regulation may be too strict or too relaxed
• high admin costs of regulatory bodies
  = no guarantee of of success= high OC of taxpayer money
• high risk of regulatory capture
  = high gov failure= costs outweigh benefits

Question 12

forms of monopoly regulation

Answer 12

• price regulation
• quality control= performance targets etc
• profit regulation
• tax monopoly profits
• privatisation

Question 13

examples of regulations on monopolies

Answer 13

• Biden put legislated price cap of $35 dollars a month on insulin products for senior patients
  = Elli Lilly (main insulin provider) cut prices by 70%

Question 14

specific comp policies

Answer 14

• investigation of mergers and take-overs between firms (e.g. a merger between two large groups which would result in their dominating the market)
• analyses state aid measures such as airline subsidies to ensure that such measures do not distort the level of competition in the Single Market
• market liberalisation involves introducing competition in previously monopolistic sectors such as energy supply, retail banking, postal services
• elimination of agreements that restrict competition including price-fixing and other abuses by firms who hold a dominant market position