3.6

• What is the role of the Competition and Markets Authority (CMA)?

  To promote competition and investigate mergers and breaches of competition law
• What actions can the CMA take against businesses?


  Impose financial penalties, prevent mergers, and force reversals of actions
• How does the CMA assess mergers in the UK?


  By considering whether there will be a substantial lessening of competition (SLC)
• What is the threshold for a merger to be investigated by the CMA?

  A market share greater than 25% or a combined turnover of £70 million or more
• Why does the CMA aim to prevent large companies from merging?


  To prevent exploitation of customers through higher prices and reduced quality
• What is a potential issue with the CMA's investigation of mergers?

  Very few mergers are investigated each year
• What was the outcome of Tesco's takeover of Booker?


  The CMA allowed the takeover due to low impact on competition
• Why did the European Commission block the merger of Ryanair and Aer Lingus in 2010?


  Because they would control more than 80% of all flights from Ireland
• What is considered anti-competitive behavior in monopolies?


  Exploiting a dominant position to stifle competition
• What is the main focus of regulation for monopolies?


  To control allocative and productive inefficiencies
• What formula do regulators use to set price controls for monopolists?


  RPI-X formula
• What does 'X' represent in the RPI-X formula?


  The expected efficiency gains of the firms
• How does the 'RPI-X+K' system differ from RPI-X?


  'RPI-X+K' includes a factor for investment
• What incentive does the RPI-X+K system provide to firms?

  To be as efficient as possible to increase profits
• What is a challenge in setting the value of 'X' in price regulation?

  Rapid improvements in technology and asymmetric information
• What can happen if regulators set maximum prices equal to the marginal social cost (MSC)?


  It can ensure allocative efficiency
• What is a potential downside of setting maximum prices?

  It can increase dynamic inefficiency
• What regulation method is used in the USA for monopolies?

  'Rate of return' regulation
• What is the goal of 'rate of return' regulation?

  To cover operating costs and earn a fair return on capital
• What is a criticism of 'rate of return' regulation?


  It encourages firms to employ too much capital
• What is a challenge with quality standards for monopolists?


  Monopolists will only produce high quality if it maximizes profits
• What is an example of a quality standard imposed by the government?


  The Post Office must deliver letters daily
• What is a requirement for implementing performance targets?

  Political will and understanding
• What is yardstick competition?

  Setting performance targets based on the best-performing operators
• What is a potential issue with performance targets?


  Firms may resist the introduction of targets
• What happened to Network Rail in 2013-14?


  They failed to deliver on performance targets
• How can the government promote small businesses?

  By providing training, grants, and tax incentives
• What is the purpose of the Red Tape Challenge?


  To decrease regulation for small businesses
• What is deregulation?


  The removal of legal barriers to entry in a market
• What is a potential negative effect of deregulation?


  It can lead to poor business behavior
• What is competitive tendering?

  Requesting competitive tenders for goods and services
• What is the benefit of competitive tendering?

  It minimizes costs and ensures efficiency
• What is a challenge with competitive tendering?


  The process of collecting bids can be costly and time-consuming
• What is the purpose of anti-competitive laws?


  To prevent collusion and predatory pricing
• What penalties can firms face for engaging in anti-competitive practices?

  Fines up to 10% of worldwide annual sales
• What was the outcome of the investigation into UK supermarkets in 2011?


  Nine supermarkets were found to be fixing prices
• What is a challenge in proving collusion?

  It is difficult to prove overt and tacit collusion
• What is monopsony power?

  The ability of a buyer to exploit suppliers by reducing prices
• How can the government prevent monopsony power?


  By passing anti-monopsony laws and introducing independent regulators
• What measures can be taken against firms that exploit their monopsony power?


  Fines and minimum prices can be introduced