GI - Monopolies and mergers

    Cards (5)

    • Governments intervene for the control of monopolies and mergers to ensure consumers aren't exploited
    • Intervention to control mergers - The CMA ensures the creation of monopoly power is avoided and that consumers aren't exploited (from higher prices, lower quality or less choice). They also monitor merger activity in aiming to prevent a firm gaining >25% market share; the CMA can have authorities insist a firm sell assets to limit its market share
    • Intervention to control monopolies :
      • Price controls - The CMA uses maximum prices to lower prices charged so firms make less supernormal profit. This increases consumer surplus and ensures better allocative efficiency. However, a shortage is created and its hard to find a firms' marginal cost determine where their profit is
    • Intervention to control monopolies :
      • Profit controls - The government sets a max level of profit that can be earned if the market was 'competitive'. This limits profit and disincentivises high prices. However, firms can state their costs to be higher to earn higher profits
    • Intervention to control monopolies :
      • Performance and quality standards - governments can set minimum standards to ensure that g/s are adequate in the absence of competition. This protects consumers but, these standards can affect business performance and firms may still lobby governments