Regulation & Competitve Policy

Question 1

UK authority for regulating companies

Answer 1

CMA

Competition and Markets Authority

Question 2

2 policies used by the CMA

Answer 2

1. merger policy
2. price regulation

Question 3

Merger policy

Answer 3

blocking money that might give firms too much power (25% of market)

Question 4

Price reguaoltion

Answer 4

capping prices firms can charge consumers

Question 5

profit regulation

Answer 5

taxing policiy on firms of they make too much supernormal profit

Question 6

performance targets and quality standards

Answer 6

imposing targets and standards so firms dont produce low quality goods or services

Question 7

what powers does the CMA have after merger policy

Answer 7

block mergers

investigate mergers if

• combined market share of + 25%
• Combined turnover of >£750m

Question 8

CMA merger examples

Answer 8

3 and O2 merger- would have controlled 31% of marker

Virgin and David Lyod merger

Both of these mergers were blocked

Question 9

2 types of working out price cap for markets

Answer 9

RPI + K

RPI - X

Question 10

RPI + k price cap

Answer 10

RPI is inflation and K is for SN profit allowing infrastructure and the technology infrastructure

This is used for Water companies Oft sets price cap

Question 11

RPI - X

Answer 11

Used by Ofgem for energy

RPI - X

x is to represent a % by which prices need to be reduced

this is to encourage greater efficiency

Question 12

Regulatory capture

Answer 12

When a regulation favours the company which they are regulating

Question 13

Example of regulatory capture

Answer 13

BP- lots of licenses

high rate of oil spill

setting quality standards too low

settting K too high

Setting X too low

Question 14

Profit regualtion

Answer 14

setting a limitation the maximum profit

all profit above celling becomes taxed at 100%

firms then reinvest all surplus profit

Question 15

Performance targets and quality standards

Answer 15

NHS

Responds A&E in under 4 hours

if not highlights power leadership

Question 16

4 ways to promote contestability

Answer 16

lowering barriers to entry makes contemptibility higher

1 de-regulation
2 privatisation
3 stopping anti competitivness
4 helping small business

Question 17

Alternatives to CMA

Answer 17

larger firms can avoid CMA through regulatory capture and settling merger lawsuits which are brought against them

continue to be efficient

new firms tend to enter market to create competition

Question 18

Examples of privatisation

Answer 18

BT

Margret thatcher privatised

Question 19

Deregulation after privatisation

Answer 19

before the post office was privatised they were the sole firm allowed to deliver letters and no longer became this when the PO was privatised

Question 20

Competitive tendering

Answer 20

outsource specific jobs for a state service

NHS- catering jobs

Question 21

Anti competitive practices

Answer 21

anything a firm might do to resist competition

predatory price

price collusion

Question 22

Vertical integration

Answer 22

when firms at different stages od the same production process join together

Question 22

Forward vertical integration

Answer 22

when a firm akuires a firm closer to the consumer than they are

producer buying a distributor firm

Question 23

CMA on forwards vertical intergration

Answer 23

strict laws against this

fine 10% of revenue

Prosecrtue CEO

Question 24

3 ways that the government encourages small business growing

Answer 24

1 greater access to loans 2 R & D tax breaks 3 Subsidies

Question 25

Enterprise capital funds

Answer 25

same loans with low interest rates allowing forms to reach economies of scale and compete with incumbent firms

Question 26

impact of subsidies

Answer 26

lower cost increased price based competition

Question 27

Nationalition

Answer 27

when private firms are transferred into the public sector Price set at allocative efficiency