Competition policy

When is competition policy applied?

To promote competition or competitive behaviour; from a lack of competition, or contestability, will lead to allocative inefficiency.

Which Gov’t body oversees competition policy?

Competition and Mergers Authority (CMA). 

What is the regulator for telecoms?

OFCOM

Which markets are likely to have competition policy applied?

High monopoly power.

Why are they likely to intervene in high monopoly power?

There’s high B/E which cause the lack of competition

What are the 5 main objectives of competition policy?

1. Prevent/reduce monopoly price.

2. Promote competition (make the market contestable). 

3. Ensure quality and standards of goods. 

4. Regulation of monopoly (particularly natural).

5. Promote technical innovation.

When to regulate?

When to privatise / liberalise?

Regulate - Natural B/E; high monopoly power

Liberalise - Artificial B/E; Strategic or Minimal chance of unintended consequences won’t inefficiency

When not to regulate?

Small size of market failure; pharmacitucals

If regulation can improve and possible create perfect allocative efficiency and therefore reduce or eradicate market failure), why is regulation second best to liberalisation?

Potential of Gov’t failure; as gov’ts are unlikely to find the right price and output to improve the market.

Why might gov’t failure occur?

political biases and lack of information