Competition policy

Uks competition policy aims to

Reduce the amount of anti competitive behaviour and and enhance competition in markets to protect consumers and improve economic outcomes for society

It is undertaken by the competition and markets authority (CMA)

Competition policy in the UK is focused on four areas

Monopolies

Merger and acquisitions

Restrictive trading policies

Promoting competition

In the UK

Any firms who look to merge with or acquire other firms in their market which leads to them having 25% + market share will be considered and maybe investigated by the CMA

CMA decides whether the transaction would lead to a lack of competition in the market and so excessive monopoly power - can block the deal

Merger

When two or more firms willingly join together

Acquisition

When two or more firms unwillingly join together

Monopoly prevention

Monopolies formed through mergers or agreements can often be inefficient

This is because they restrict quantity and agree to raise price to a level that isn’t allocatively efficient

Can prevent monopolies forming by blocking mergers

The UK government investigates all mergers which will result in a firm having greater than 25% market share (a legal monopoly)

Why governments encourage competition

Lowering prices- if theres competition in production of goods/ services it means firms will have to make their products more attractive

Higher quality

Deregulation can improve contestability

Contestability in markets can be improved through deregulation

Because barriers to entry have been lowered

This is good for competition in an industry

Strengths

Can be used to help boost/ stabilise the income of producers

Therefore will help ensure secure supplies of the good i.e. more will be produced

Weakness

Will lead to wastage- too much is produced (excess supply) and consumers will be unwilling to purchase all that is produced

Cost of intervention may be high