Theme 3:3.6:Gov Intervention

Question 1

CMA and their job

Answer 1

Competition and market authority : promote competition for the benefits of consumers and investigate breaches of UK and EU competition law

Question 2

when is a merger approved and disapproved ?

Answer 2

approved: benefits> costs
disapproved:when merger will result in company having >25% market share or a total turnover of £70 million+

Question 3

problems with CMA

Answer 3

very few mergers investigated yearly
information gaps when making decisions

Question 4

ways gov control monopolies

Answer 4

price regulation
profit regulation
quality controls
performance targets

Question 5

price regulation

Answer 5

setting prices below profit max price at Allocative efficiency and use of RPI-X formula X=efficiency gains and aim is that firm passes efficiency gains down to conusmers
e.g. used in airport industry

Question 6

what is the preferred formula when setting prices

Answer 6

RPI-X+K
K represents the level of investment
e.g. used in water industry where level of investment is £130 billion

Question 7

cons of price regulation

Answer 7

-difficult to know where to set x as there’s no perfect info
-regulatory capture-monopoly owners may be familiar with regulators and there are less strict regulations
-if X is too high firms may shutdown

Question 8

profit regulation

Answer 8

government giving monopolies a rate of return on capital investment it encourages investment and prevents firms from setting high prices

Question 9

cons of profit regulation

Answer 9

-may over employ capital to increase profits
-assymetric information

Question 10

quality control

Answer 10

government ensure monoplies produce goods at a good standard

Question 11

cons of quality control

Answer 11

requires political will and understanding

Question 12

performance targets

Answer 12

can set punctuality targets e.g. for trains as there are many train delays or NHS to see a set amount of patients in a day

Question 13

cons of performance targets

Answer 13

unintended consequences: train company can extend journey times to prevent official delays

Question 14

ways the gov can promote competition and contestability

Answer 14

deregulation
privitisation
promote small businesses
competitive tendering

Question 15

deregulation

Answer 15

removal of barriers to entry
deregulation act of 2015 aims to continue deregulation

Question 16

how can the gov be promoting small businesses

Answer 16

via grants and training and subsidies which will all increase efficiency and innovation

Question 17

explain competitive tendering

Answer 17

gov invite private firms to bid to produce a G/S

Question 18

cons of competitive tendering

Answer 18

-private sector may not aim to maximise social welfare
bid process is costly and time consuming

Question 19

how to restrict monopsony power

Answer 19

via anti monopsony laws: make certain practices illegal because buyers can exploit suppliers
independent regulator: to ensure monopsonies buy fairly

Question 20

how does the gov protect workers

Answer 20

right to be in a trade union
minimum and maximum hours to work
redundancy processes
health and safety laws
employment contracts

Question 21

nationalisation

Answer 21

when a private sector company is brought under state control

e.g.high levels after WW2 know as the golde age
e.g. NHS

Question 22

pros of nationalisation

Answer 22

can lead to EoS
reduced market failure

Question 23

cons of nationalisation

Answer 23

DoS
Principal agent problem
lack of SNP
lacks incentive to reduce cost
waste production