Regulation & Competition Policy

The CMA will investigate a merger for two reasons:

1. If the merging firms will have over 25% market share together (like 3 and O2)

2. The “turnover test”: if the merging firms have a combined annual turnover above £70m

there are two main types of price regulation - what are they:

RPI+ K and RPI- X

regulatory capture is when:

when a regulator begins to favour the company they’re regulating.

Profit regulation is when:

firms’ profits are taxed at 100⁢% above a certain limit

No one wants to government stealing all their profits. This encourages them to reinvest extra profit back into the company and improve the quality of service they provide.

performance targets examples

Performance targets include, ScotRail, who have the performance target of 91.3% of its trains running on time.

Performance targets also extend to the NHS - each hospital has the performance target of responding to accident and emergency patients in less than 4 hours.

Examples of quality standards include:

The Food Standards Agency (FSA) give out a quality standard as do the British Standards Institute (BSI).

deregulation is when:

when regulations are removed to lower barriers to entry.

Define privatisation:

when the government transfers ownership of a public sector firm to the private sector.

competitive tendering is when:

when the government outsources specific job contracts to the private sector. Private sector firms bid to win the contract, by offering the best deal - the highest quality for the lowest cost. The government then chooses the firm which offers the best value for money - and awards them the contract.

Competitive tendering is great for the government because:

Competitive tendering beneficial for the government because, by getting private sector firms to bid against each other for the contract, private sector firms will undercut each other’s prices and offer better quality. This means the government can make sure it’s getting the best deal possible - saving money, and increasing quality.

What are anti-competitive practices?

include anything a firm might do, to restrict competition e.g vertical integration, colluding, predatory pricing

In response to anti-competitive behaviour, the CMA can:

Set a fine up to 10% of annual revenue

2. Sentence CEOs to jail time

3. Name and shame the firm publicly

Nationalisation is when:

when the private sector transfers ownership of a private sector firm to the government.

Nationalisation gives the government total control over the firm and market, so it can set prices to:

P= MC But at this price, the British Rail were making a huge loss