monopolies, mergers (L16) Flashcards
downsides of monopoly power
higher prices
lower output
anti competitive practices
predatory pricing
collusion
limit competition in the market
cma
competition and markets authority
promote competition and prevent anti-competitive practices
examples of industry specific regulatory bodies
OFWAT water
ORR rail
OFGEM energy markets
two main forms of price regulation
RPI-X
RPI+X
RPI-X
X refers to efficiency gains
restrains price rises for essential services, incentive for them to increase efficiency
how is X calculated
regulator investigates costs of firms in the industry to gain an understanding of efficiency gains
evaluate RPI-X
protects consumers
prevents excessive prices, gains are passed onto consumers
accurately setting X is hard
strong risk of information being withheld
if X is set too low there’s less incentive for firms to be efficient
profit regulation
alternative to price regulation, regulates utilities by setting limits on how much profit firms can make
rate of return regulation
allows firms to cover cost + earn return based on capital they use to incentivise investment
evaluate rate of return regulation
little pressure for firms to be productively efficient as the regulator guarantees costs will be covered
firms may overload on capital investment for higher profit
performance targets
used to regulate monopolies and incentivise improvements in public organisations like schools
ORR states certain no of times a train can be late
quality standards
minimum standards a service a regulator requires a monopolist or public body to meet (A&E services are given 4 hours to treat and discharge or admit or transfer a patient)
evaluate performance targets to regulate monopolies
acts as a surrogate for competition, forcing firms to act like they’re in a contest able market
without sufficient sanctions they won’t be motivated
may game the system (surgeons avoiding difficult surgeries in order to maintain high success rate)
unintended consequences ( police spending more time on paperwork than helping the public)
which mergers do the CMA investigate
combined market share of over 25% or turnover of £70m+
