competition policy Flashcards
who enacts competition policies?
CMA – split into regulatory bodies
What are aims of competition policy?
- Protect public interest
- Prevent excessive pricing
- Promote competition
- Ensure quality, standards and choice
- Regulate natural monopolies/ privatize them
- Ensure promotion of technological innovation
When will CMA intervene?
- Antitrust and cartel agreements
- Investigate mergers
- Liberalise concentrated markets
- Monitor state aid control
Monopoly regulation main
- Price regulation – RPI, RPI – x. RPI +-x
- Quality control/ performance targets
- Profit control covering costs and adding rate of return on capital employed
- Windfall taxes on monopoly profit
BUT - price regulation
- Level of x/k?
- Cost – taxpayer? - loans?
- Incentive to keep ‘x’ low? - unfair if we do well and they reduce x further
- Regulatory capture – corruption
but - Quality control/ performance targets
- Can lead to unintended consequences
- Manipulate the situation to not miss targets but to still maintain bad performance
but - Profit control covering costs and adding rate of return on capital employed
- Asymmetric information
- Incentive to increase costs as they’ll be covered
- Incentive to over employ capital
BUT - Windfall taxes on monopoly profit
- Increase costs of production = lower output, higher price = worsen monopoly outcomes
- Tax evasion/ avoidance
- Less innovation
- Under reporting of profit
monopoly regulation - other
- Merger policy
- Privatisation
- Deregulation
- Reducing trade barriers.
max price =
on P = MC
- AE
- higher output, lower p
EVAL?
- Level of information regulatory bodies actually have – inaccuracies = may be too strict or too lax.
- Costs of regulation – taxpayer?
- Reulatory capture may occur
- Benefits of monopoly – too strict = less dynamic efficiency = less low costs + innovation
Price regulation
RPI - x formula or +k
- x is the amount by which they have to cut prices by in real terms
- if Inflation = 3, and X = 1, then firms can increase nominal prices by 2%
- gives efficiency incentive
- prevented excess prices
- where do u set it?
Profit regulation
- us uses rate of return regulation
- aims to encourage investment
- little incentive to be efficient
- requires symmetric info with regulator
Quality standards
Monopolists will only produce high quality goods if this is the best way to maximise profits. The government can introduce quality standards, which will ensure that firms do not exploit their customers by offering poor quality
Performance targets
Regulators can introduce yardstick completion, like targets over price, quality, consumer choice
- issue is firms will resist introduction of targets
