3.6 gov interventions

• 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
• What criteria does the CMA use to assess mergers in the UK?

  • Specific circumstances of each case
  • Substantial lessening of competition (SLC)
  • Market share greater than 25% or combined turnover of £70 million or more
• Why does the CMA prevent large companies from merging?

  To prevent exploitation of customers through higher prices and reduced choice
• What is the issue with the number of mergers investigated by the CMA?

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

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

  They would control more than 80% of flights from Ireland
• What defines anti-competitive behavior in monopolies?

  • Exploiting a dominant position to stifle competition
  • Being allocatively and productively inefficient
  • Regulation primarily occurs in utilities, which are natural monopolies
• How do regulators control prices in monopolistic markets?

  By setting price controls below profit-maximizing levels using the RPI-X formula
• What does the 'RPI-X+K' formula represent?

  It includes investment levels (K) in addition to efficiency gains (X)
• What is the incentive for firms under the RPI-X+K system?

  To be as efficient as possible to increase profits
• What challenge do regulators face when setting the value of X?

  Rapid technological improvements and asymmetric information from firms
• What is the purpose of setting maximum prices in monopolistic markets?

  To ensure allocative efficiency
• What is the 'rate of return' regulation used in the USA?

  Prices are set 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 to increase profits
• How can the government ensure high-quality goods from monopolists?

  By introducing quality standards
• What is an example of a quality standard enforced by the government?

  The Post Office must deliver letters daily
• What are performance targets in regulatory contexts?

  • Setting punctuality targets for train companies
  • Comparing regional performance in services
  • Targets can include price, quality, consumer choice, and production costs
• What is the challenge with implementing performance targets?

  Firms may resist targets and find ways to meet them without improvement
• What happened with Network Rail in 2013-14?

  They failed to deliver on performance targets for their long-distance sector
• How does the government promote small businesses?

  • Providing training and grants
  • Offering tax incentives or subsidies
  • Aiming to increase competition and innovation
• What is deregulation?

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

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

  • Government contracts out goods/services to private firms
  • Firms bid for contracts based on specifications
  • Helps minimize costs and ensures efficiency
• What is the purpose of the Enterprise Act (2002)?

  To penalize firms engaging in anti-competitive practices
• What can happen to firms found guilty of collusion under the Enterprise Act?

  They can be fined up to 10% of worldwide annual sales
• What is the challenge in proving collusion among firms?

  It is difficult to prove overt collusion and almost impossible to prove tacit collusion
• What measures can be taken to restrict monopsony power?

  • Anti-monopsony laws to make certain practices illegal
  • Independent regulators to enforce fair purchasing
  • Minimum prices to ensure fair payment to suppliers
• How does the government protect workers' rights?

  Through health and safety laws and employment contracts
• What is the CMA's role in enforcing consumer protection law?

  To ensure businesses comply with laws that protect consumers
• What is regulatory capture?

  When regulatory agencies are influenced by the industries they regulate
• Why is political will important in implementing regulations?

  It ensures that regulations are enacted and enforced effectively
• What is the impact of privatization on market competition?

  It can increase competition by allowing private firms to enter the market
• What is the significance of quality standards in monopolistic markets?

  They ensure firms do not exploit customers by providing poor quality
• What challenges do regulators face when setting performance targets?

  Firms may resist targets and find ways to meet them without real improvement
• What was the fine imposed for the violation mentioned?

  £10 million
• Why is it difficult to prove collusion?

  It is very difficult to prove overt collusion and almost impossible to prove tacit collusion
• What measures can be taken to protect suppliers and employees from monopsony power?

  • Anti-monopsony laws to make certain practices illegal
  • Independent regulators to enforce fair buying practices
  • Fines for exploitation of power
  • Introduction of minimum prices for fair supplier payments
  • Self-regulation, though it is weak
• What do anti-monopsony laws aim to prevent?

  They aim to prevent monopsonists from exploiting suppliers by reducing prices
• What rights does the government provide to protect employees?

  The government protects employees through health and safety laws, employment contracts, redundancy processes, maximum hours at work, and the right to be in a trade union