Regulation and Competition Policy to restrict monopoly

Question 1

4 types of regulation

Answer 1

Merger policy
Price caps
Profit caps
Performance targets/Quality standards

Question 2

Merger policy-When will CMA investigate

Answer 2

25%+ Market share

Annual turnover of £70m

Question 3

Merger policy investigating and blocking

Answer 3

They only investigate, they block if they believe it will negatively impact consumers

Question 4

Examples of merger policy (2)

Answer 4

3 and O2 was blocked (31%)

Lloyds and HBOS was allowed as both going bankrupt and merging allows to use E.O.S to reduce LRAC to survive

Question 5

Price cap types

Answer 5

RPI+K

RPI-X

Question 6

RPI+K role and aim

Answer 6

Allows them to increase prices by ‘k’% above the inflation rate, to make SNP to invest in capital machinery to increase efficiency and quality

Question 7

RPI-X role and aim

Answer 7

Allows them to increase prices by ‘x’% less than inflation rate, to force them to become more efficient and reduce costs (REDUCE MONOPOLY X-INEFFICIENCY)

Question 8

Evaluation to price caps (3)

Answer 8

Diffucult to set X/K- e.g X too high, too strict, firms may close.

Regulatory capture e.g may set K too high, or X too low, won’t promote competitive outcomes

Cost of regulating

Question 9

Profit caps and pros and cons (1,1)

Answer 9

Profit above a certain limit is taxed at 100%

+incentivises firms to invest and improve efficiency rather than it going to tax

-removes profit incentive, can cause x-inefficiency

Question 10

Performance targets and examples (2)

Answer 10

Performance targets set targets for firms to meet to ensure they provide a top quality service

Scotrail-91.3% trains have to be on time or they get fined and publicly shamed, harms brand rep

NHS-have to respond to emergency patients within 4 hours or head can get fired

Question 11

Quality standards and examples (2)

Answer 11

Standards of quality firms have to meet to sell goods and services

Food Standards Agency
BSI

Question 12

Deregulation and example

Answer 12

Removing regulations to lower barriers to entry so more can compete

Airline Deregulations Act-allowed more airlines to enter, and allowed more routes, quicker and lower cost and prices

Lower prices
Increased efficiency
Improved quality

Question 13

Deregulation and example

Answer 13

Removing regulations to lower barriers to entry so more can compete

Airline Deregulations Act-allowed more airlines to enter, and allowed more routes, quicker and lower cost and prices

Lower prices
Increased efficiency
Improved quality

Question 14

Privatisation

Answer 14

Profit maximising shareholders cut costs, drive efficiency. Often followed by dereg, so more enter, driving lower prices, efficiency and quality improvements

Question 15

Privatisation eval

Answer 15

Quality may fall to cut costs

PM may mean prices get too high

Question 16

Competitive tendering

Answer 16

Competitive tendering is when the government outsources specific job contracts to the private sector. Private sector firms bid to win the contract, by offering the best deal - the highest quality for the lowest cost. The government then chooses the firm which offers the best value for money - and awards them the contract!

Question 17

Stamping out anti-competitive practices-3 types

Answer 17

Collusion
Vertical integration
Predatory pricing

Question 18

How can they stamp out ant-competitive practices

Answer 18

Fines up to 10% annual revenue
Jail
Publicly name and shame

Question 19

Helping small businesses grow methods

Answer 19

R&D tax breaks
Access to loans
Subsidies

Question 20

Nationalisation-maximises welfare

Answer 20

When prices are set too high and quality falls