government intervention

CMA

competition and markets authority: regulates competition in the UK, promoting competition, ensuring markets are efficient and protect consumer interests

controlling mergers

* investigated if it will result in a market share greater than 25% or a joint turnover of £70 million
* aim is to avoid exploiting customers by raising prices and lowering qualities
* very few mergers are investigated each year

controlling monopolies: price regulation

* regulators set prices below prof max price, to avoid losing allocative efficiency, using RPI-X / RPI-X+K


* maximum prices could be set where the price is equal to MSC, ensuring allocative efficiency

RPI-X / RPI-X+K

* K represents the level of investment
* X represents the expected efficiency gains of a firm
* this is to ensure firms pass on their efficiency gains to consumers
* encourages efficiency as firms increase profits by cutting costs by more than X and prevents firms from exploiting their monopoly power

controlling monopolies: profit regulation

* governments can control profits made by ensuring they are not excessive
* e.g. corporation tax
* can give incentive to employ too much capital
* reduction in cost can give little incentive to be efficient

controlling monopolies: quality standards

* firms may reduce costs by providing lower quality goods and services
* introducing quality standards prevents firms from exploiting their customers by providing poor quality

controlling monopolies: performance targets

* regulators can set targets to regulate quality
* e.g. reducing waiting times in NHS
* leads to gains for consumers
* firms can resist introduction of targets and find ways to meet them without actually improving e.g. trains changing timetables so that they don’t arrive late
* firms can fail to meet their performance targets if not threatened by fines

promoting competition and contestability

promoting small businesses

deregulation

competitive tendering

promotion of small businesses

* training and grants to new entrepreneurs
* tax incentives and subsidies
* increases innovation and efficiency as new firms are likely to provide new products
* leads to firms not being x-inefficient

deregulation

* removing legal barriers to entry allowing enterprises to compete
* increases efficiency by allowing more competition

competitive tendering

* contracting provision of goods and services to private companies
* competition can be introduced as competitive tenders can bid for contracts to deliver the provision of government goods
* this minimises costs for the government and ensures efficiency as it encourages competition in the market
* many goods are produced by the private sector then bought by the public sector

protecting suppliers and employees

restrictions on monopsony power

nationalisation / privatisation

workers rights

restrictions on monopsony power

* passing on anti-monopsony laws making certain practices illegal and preventing monopsonies from exploiting suppliers
* fines can be issued for those who exploit power
* minimum prices ca be set

workers rights

laws passed e.g. health and safety laws, employment contracts, maximum hours etc.

privatisation and nationalisation

sale of government goods to private investors which can revitalise inefficient industries

however can sometimes lead to higher prices and poor services