3.6.1 Government Intervention (=UK competition policy)

What is UK competition policy

UK government’s intervention in markets to improve market efficiency

Current competition authorities to deliver these competition policies

• European Commission - enforce competition policies - checks big companies & can stop mergers if they harm competition across Europe

• Department for Business, Industry & Skills - UK government department that sets the policy for businesses to follow

• Competition & Markets Authority (CMA) - enforce competition policies to make markets work well to benefit consumers

• Competition Appeals Tribunal (CAT) - A court that reviews decisions made by CMA & other regulators; businesses can appeal here if disagree

• Individual industry regulators - promoting competition within specific sectors (ie. Price, costs & quality)

Government intervention (competition policy) to control mergers - Reasons to approve the merger

• Merger → economies of scale → higher supernormal profits → spending on research & development, capital goods → new products with higher quality + more efficient production → lower costs → lower price → increase allocative efficiency/consumer surplus increases / more internationally competitive

• Merger → 2 firms combine their operations → one large firm → less repetition of roles (ie. Marketing) → firm spends less on wages → cost decreases → move closer towards MC = AC → Productive efficiency increaseS

Government intervention (competition policy) to control mergers - Reasons to reject merger