Theme 3: Government Intervention Flashcards
What does the CMA stand for?
Competition & Markets Authority
What are the 4 key types of policies that the CMA use for regulation?
1) Merger policies
2) Price regulations
3) Profit regulations
4) Performance targets & quality standards
What is a merger policy?
Blocking mergers that might give firms too much market power
What is price regulation?
Capping the prices firms can charge consumers
What is profit regulation?
Taxing the profits if they make too much supernormal profit
What are performance targets & quality standards?
Imposing targets and standards so firms don’t provide dodgy goods or services
The CMA only investigates a merger for what 2 reasons?
1) if the combined market share is over 25%
2) if the combined annual turnover over $70m
What are the 2 types of price caps?
1) RPI + K
2) RPI - X
What is regulatory capture?
when a regulator begins to favour the company they’re regulating.
Can you give examples of performance targets?
ScotRail, who have the performance target of 91.3% of its trains running on time!
Performance targets also extend to the NHS - each hospital has the performance target of responding to accident and emergency patients in less than 4 hours.
Can you give examples of performance targets?
The Food Standards Agency (FSA) give out a quality standard as do the British Standards Institute (BSI).
What are the 4 ways in which the CMA can increase contestability?
1) Deregulation
2) Privatisation
3) Stopping anti-competitive practices
4) Helping small businesses
What is deregulation?
when regulations are removed to lower barriers to entry.
What is privatisation?
when the government transfers ownership of a public sector firm to the private sector.
What is competitive tendering?
when the government outsources specific job contracts to the private sector.
How does competitive tendering happen?
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!
Why is competitive tendering great for the government?
By getting private sector firms to bid against each other for the contract, private sector firms will undercut each other’s prices and offer better quality. This means the government can make sure it’s getting the best deal possible - saving money, and increasing quality.
What are anti-competitive practices?
include anything a firm might do, to restrict competition.
What is another term for anti-competitive practices?
Restrictive practices
What are the 3 examples of anti-competitive practices?
1) vertical integration
2) price collusion
3) predatory pricing
In response to anti-competitive behaviour, what are the 3 things that the CMA could implement?
1) Set a fine up to 10% of annual revenue
2) Sentence CEOs to jail time
3) Name and shame the firm publicly
What are the 3 ways in which the government can help small businesses grow?
1) Access to loans
2) R&D tax breaks
3) Subsidies
What is nationalization?
when the private sector transfers ownership of a private sector firm to the government.
Can you give 2 examples of nationalisation?
- Sweden: nationalised its alcohol stores to system bolaget to reduce negative externalities of consumption
- UK: nationalized its railways to British railways until 1993
