regulation and competition policy

• merger policy

  • price regulation
  • profit regulation
  • performance targets and quality standards
• Merger policy= CMA blocks them if the market share is over 25% or combined annual turnover of 70%
• Price regulation = limits price to protect consumers
• (RPI + K ) = OFFWATT = Water regulation
• RPI used for invest
• (RPI-X) = efficiency and reduce costs
• Regulatory capture: regulator begins to flavour the company they regulating example setting quality standards low low
• RPI + K ( increase firms price cap- increase price)
• Profit regulation: GOV takes 100% of the firm's profit in tax when above a certain amount
• companies reinvest - more stable prices, more jobs, more tax revenue
• RPI + K = no extra profit: no incentive: less efficient: cost spiral
• performance targets: link to time managements
• Performance targets:


  Gov sets targets for firms to meet to ensure they're providing a top quality service
• Quality standards= gov sets standards of quality firms have to meet
• Promoting contest ability: new firms
• 4 ways to contest?

  1. deregulation
  2. privatisation
  3. helping small business
  4. stopping anti-competitive practices
• Privatisation: gov transfers ownership from public sector firm to private sector firms
• Competitive tendering:


  gov outsources specific job contract offering best deal highest quality for lowest cost
• competitive tendering: 


  Better quality= reduce costs
• Anti-competitive practices


  anything to reduce competition
• vertical integration


  `Firms at different stages of same production process join together
• CMA ( anti-competitive prices)

  set fines

  sentence CEO to jail

  name and shame firms publicly
• helping small business grow

  • access to loans increases EOS
  • R&D tax breaks
  • increase Supernormal profit
• Nationalisation


  Private sector transfer ownership of PS to GOV
• Railways


  Natural monopoly: P=MC

  • allocative efficiency - maximise welfare
  • huge loss