8.7

• What is competition policy?

  Refers to government measures designed to promote competition, prevent anti-competitive practices, and protect consumer welfare
• competition policy definition

  part of the governments microeconomic policy and industrial policy which aims to make good markets more competitive. it comprises policy towards monopoly, mergers and restrictive trading practices
• what are the main aims of competition policy?

  • promote efficiency
  • encourage innovation
  • prevent abuse of market power
  • improve consumer choice and welfare
  • ensure fair pricing
• what UK body enforces competition policy?

  the Competition and Markets Authority (CMA)
• what are the four key pillars of UK/EU competition policy?

  • anti-monopoly regulation
  • merger control
  • cartel and collusions prevention
  • liberalisation of markets (e.g opening state-run industries to competition)
• what are the two main circumstances in which monopoly may be preferable to small firms reducing in a competitive market?

  • size of market limited but economies of scale are possible, monopolies can produce at a lower average cost than smaller, more competitive firms
  • under certain circumstances, monopoly power may be more innovate than firms that are not protected by entry barriers - monopoly may be more dynamically efficient
• what is abuse of dominant market position?

  when a firm with significant market power uses it to distort competition or exploit consumers (e.g predatory pricing or exclusivity deals)
• what is predatory pricing?

  when a firm sets prices below cost to force out rivals, then raises prices once competition is gone
• what is limit pricing?

  setting prices low enough to deter new firms from entering the market, but still making a profit
• how does competion policy regulate mergers?

  • mergers are investigated if thet reduce competition
  • CMA can block, allow with conditions or approve a merger
  • the aim is to prevent monopolies or oligopolies forming
• what are cartels and how are the addressed?

  • cartels are illegal agreements between firms to fix prices, limit production and divide markets
  • CMA can impose fines, criminal penalties, or disqualify directors
• what are some real-world examples of CMA action?

  • Asda/Sainsbury‘s merger blocked in 2019
  • Facebook fined for data misuse
  • energy firms investigated for overcharging customers
• how can competition policy benefit consumers?

  • lower prices
  • more choice
  • higher quality
  • greater innovation
  • better service
• what are the challenges of implementing competition policy?

  • difficult to detect collusion
  • global firms may avoid regulation
  • some mergers bring efficiency gains
  • legal appeals can delay action
• what is market liberalisation?

  removing barriers to entry in previously state-run or monopolies industries (e.g telecoms, railways) to increase competition
• What is the aim of UK competition policy?

  • Promote competition
  • prevent anti-competitive practices
  • encourage efficiency by regulating monopolies, mergers and restrictive trading practices
• what is monopoly policy and what does it aim to address?

  monopoly policy targets firms with monopoly power - those able to maintain prices above competitive levels. mainly apples to firms in highly concentrated markets and not just pure monopolies
• what is the role of the CMA?

  • investigates mergers, market structures and ani-competitive behaviour
  • formed in 2014 and absorbed roles from the OFT and Competition Commission
• what is the cost-benefit approach to monopoly policy?

  applied when the benefits of intervention (e.g consumer protection) outweigh the costs (e.g administrative burden or disruption)
• alternative approaches to deal with monopolies

  • compulsory break-up of monopolies
  • price controls/restrictions
  • windfall taxes or direct intervention
  • rate of return regulation
  • state ownership of monopoly
  • privatising monopolies
  • deregulation and removal of barriers
• what is the rate of return regulation?

  a policy where firms are allowed a fixed return on capital, to prevent overcharging, common in the USA
• how does state ownership relate to monopoly control?

  governments may nationalise monopolies to ensure they operate in the public interest. opposite: privatisation aims for efficiency and competition
• what is deregulation?

  the removal of barriers to entry to make markets more contestable and reduce monopoly power
• how does merger policy differ from monopoly policy?

  merger policy is forward-looking - it aims to prevent firms from gaining monopoly power through mergers or takeovers
• what are restrictive trading practices?

  practices that limit competition e.g price fixing or refusal to supply. these are monitored and penalised by the CMA
• why was Google fined €4.3 billion in 2018?

  For abusing market dominance by:

  • pre-installing Google apps
  • Restricting Android competitors
  • Making exclusive deals with phone makers
• Competition and Market authority (CMA) definition

  Government agency responsible for advising on and implementing UK competition policy
• What can restrictive trading practices be broken down into?

  • individual restrictive practices
  • Collective restrictive practices
• what are individual restrictive practices?

  Actions taken by a single firm to reduce competition in a market examples include:

  • charging discriminatory prices
  • Refusing to supply a particular retailer
  • Full-line forcing - requiring a supplier or customer to buy a full range of products in order to receive any at all
• what is collective restrictive practices?

  agreements between two or more firms that restrict competition. examples include:

  • price fixing
  • market sharing - firm agree to divide up the market by geography or customer types
  • output restrictions