competition policy

Question 1

who enacts competition policies?

Answer 1

CMA – split into regulatory bodies

Question 2

What are aims of competition policy?

Answer 2

• Protect public interest
• Prevent excessive pricing
• Promote competition
• Ensure quality, standards and choice
• Regulate natural monopolies/ privatize them
• Ensure promotion of technological innovation

Question 3

When will CMA intervene?

Answer 3

• Antitrust and cartel agreements
• Investigate mergers
• Liberalise concentrated markets
• Monitor state aid control

Question 4

Monopoly regulation main

Answer 4

• Price regulation – RPI, RPI – x. RPI +-x
• Quality control/ performance targets
• Profit control covering costs and adding rate of return on capital employed
• Windfall taxes on monopoly profit

Question 5

BUT - price regulation

Answer 5

• Level of x/k?
• Cost – taxpayer? - loans?
• Incentive to keep ‘x’ low? - unfair if we do well and they reduce x further
• Regulatory capture – corruption

Question 6

but - Quality control/ performance targets

Answer 6

• Can lead to unintended consequences
• Manipulate the situation to not miss targets but to still maintain bad performance

Question 7

but - Profit control covering costs and adding rate of return on capital employed

Answer 7

• Asymmetric information
• Incentive to increase costs as they’ll be covered
• Incentive to over employ capital

Question 8

BUT - Windfall taxes on monopoly profit

Answer 8

• Increase costs of production = lower output, higher price = worsen monopoly outcomes
• Tax evasion/ avoidance
• Less innovation
• Under reporting of profit

Question 9

monopoly regulation - other

Answer 9

• Merger policy
• Privatisation
• Deregulation
• Reducing trade barriers.

Question 10

max price =

Answer 10

on P = MC
- AE
- higher output, lower p

Question 11

EVAL?

Answer 11

• Level of information regulatory bodies actually have – inaccuracies = may be too strict or too lax.
• Costs of regulation – taxpayer?
• Reulatory capture may occur
• Benefits of monopoly – too strict = less dynamic efficiency = less low costs + innovation

Question 12

Price regulation

Answer 12

RPI - x formula or +k
- x is the amount by which they have to cut prices by in real terms
- if Inflation = 3, and X = 1, then firms can increase nominal prices by 2%
- gives efficiency incentive
- prevented excess prices
- where do u set it?

Question 13

Profit regulation

Answer 13

• us uses rate of return regulation
• aims to encourage investment
• little incentive to be efficient
• requires symmetric info with regulator

Question 14

Quality standards

Answer 14

Monopolists will only produce high quality goods if this is the best way to maximise profits. The government can introduce quality standards, which will ensure that firms do not exploit their customers​ by offering poor quality

Question 15

Performance targets

Answer 15

Regulators can introduce yardstick completion, like targets over price, quality, consumer choice
- issue is firms will resist introduction of targets

Question 16

Promotion of small businesses

Answer 16

• training and grants to new entrepreneurs and encourage small businesses through tax incentives or subsidies
• increases innovation and efficiency
• red tape challenge, enterprise investment schemes

Question 17

RPI +- K

Answer 17

• ‘k’ is the amount of investment firm needs to implement
• higher efficiency encouraged, if firm cut costs by more than x, can increase profits, surrogate competition
• level of x/k?, regulatory capture and disincentive to continue reinvest in LT if x keeps getting lowered.