econ

4.2.2 Business Regulation

British Gas, water, regional, trustee, northern, Royal Mail, Thomas cook, bbc

Competition policy seeks to improve the competitive nature of markets.

It seeks to alleviate market failure in order to protect the interests of consumers (consumer welfare) and society as a whole.

This can be achieved by:

• Curtailing monopoly power and protecting competitive markets

• Restricting mergers and prohibiting cartels

• Improving the way in which markets work

• Creating fairness in markets in markets for both firms and consumers that firms don’t abuse their dominant market position but are able to make acceptable profits that will drive innovation and increase productivity

There are a number of benefits that lead to competition policy being successful:

• Innovation: both productive and allocative efficiency will occur as firms incest in R&D and continually look to improve production process to lower costs over time and develop new product

• Lower price: Increase competition leads to a shift of the supply curve to right leading to a fall in market price.

• Improved quality: in order to maintain customer base within competitive market firms will strive to product better quality products and customer service or risk losing market share.

Anti-competitive practices are those that reduce competition in markets. These might include pricing strategies such as limit pricing and price fixing

Includes:

• Dumping of stock in markets at a loss in order to destory competition

• Bundling products together so that consumers have to buy accessories that they don’t want.

• Striking exclusivity deals so that buyers can only purchase from the contracted supplier

Competition policy seeks to improve the competitive nature of markets 

It seeks to alleviate market failure in order to protect the interests of consumers  and society as a whole

This can be achieved by:

Curtailing monopoly power and protecting competitive markets

Restricting mergers and prohibiting cartels

Improving the way in which markets work e.g. providing greater information

 lead to competition policy being successful:

Lower price: Increase competition leads to a shift of the supply curve to the right leading to a fall in market price 

Improved quality: In order to maintain a customer base within a competitive market firms will strive to provide better quality products and customer service or risk losing market share

Increased choice: Competition creates an increased range of products which will lead to an improved allocation of resources as firms are more likely to produce products that a variety of customers will wish to buy

Anti-competitive practices are those that reduce competition in markets

These might include pricing strategies such as limit pricing and price fixing

They also include:

Dumping of stock in markets at a loss in order to destroy competition

Bundling products together so that consumers have to buy accessories that they don’t want

Arguments for privatisation include:

 productive efficiency as profit maximisation leads firms to cut average costs

InnovatioN is more likely as firms strive to increase profits and market share by meeting customer needs. This leads to  dynamic efficiency

Allocative efficiency occurs as market forces ensure that goods and services are produced to meet the needs of the consumer

This leads to greater choice and lower prices as firms compete supernormal profits away

Increased competition rather than government monopoly leads to greater economic efficiency

Consumer protection laws protect the consumer from firms with regards the quality of goods or services sold.

A natural monopoly occurs when there is only one producer in an industry. Barriers to entry are so high that without business regulation the consumer would face considerable exploitation

This provides the monopolist with market power leading to higher prices and abnormal profits

There will be allocative inefficiency and a misallocation of resources

Therefore, a monopoly is an example of market failure

Monopolies can exploit consumers by charging high prices.  Therefore, monopolies are regulated in order to protect the customer.

Competition and market authority was up in 2024 to promote competition for the benefit of consumers

It investigates mergers and markets where there is seen to be monopoly power

It looks into anti competitive practices that lead to exploitation.

4.2.3 Arguments For And Against Regulation

2 costs and benefits for legislations and regulation

Protect people from harm.

Regulation is the creation of rules and sanctions within an industry in order to modify the economic behaviour of firms.

Helps protect consumers against the abuse of monopoly power that would lead to higher prices, supernormal profits and allocative inefficiency (market failure)

Regulation helps to ensure quality and choice are maintained in monopolistic markets

Reduce monopsonistic power of firms -> increases consumer surplus by reducing the prices of goods and services -> sets standards of markets -> fair playing field

Regulation increases costs to firms e.g. legal requirements, lead to productive inefficiency.

By regulating goods and services might lead to allocative inefficiency, profits will be impacted and lead to less investment

Less dynamic efficiency

Call for more regulation is generally used as a threat to such  businesses to curb their activities or they will be forcibly stopped

Increased regulation would probably force banks to reduce lending in order to build up the asset ratio on their balance sheet.

To much regulation would restrict the working of the free market and the efficiency that this can bring.