Government intervention Flashcards
What is the role of the CMA?
They work to promote competition for the benefit of consumers and investigate mergers
What does SLC stand for?
The substantial lessening of competition
When will a merger be investigated?
Market share is over 25%
The turnover is more than £70 million
Why would a merger be investigated?
Higher prices
Less choice
Lower quality
Why are monopolies controlled?
They are allocatively and productively inefficient
What is price regulation?
They set controls to charge a price below profit max using RPI-X
What does X stand for in RPI-X?
Expected efficiency gains
Why is price regulation in the form of RPI-X effective?
It gives firms an incentive to be as efficient as possible as if they lower costs below X they can have more profit
What is the problems with RPI-X?
- Difficult to know where to set X due to asymmetric information in the market
- Advancements made in technology etc means that efficiency gains are hard to measure
What is profit regulation?
Rate of return regulation is when prices are set to cover costs and earn money on capital investment
What are the ways in which monopolies can be controlled?
Price controls
Profit regulation
Quality standards
Performance targets
What are the concerns with profit regulation?
Firms may employ too much capital
Little incentive to be efficient
What are quality standards?
Quality standards are imposed by the government to ensure that firms do not exploit their customers by offering poor quality services
What is an example of a quality standard?
The post office has to deliver letters on a daily basis
What are performance targets?
Regulators may introduce competition etc to encourage firms to be as efficient as possible
They could set targets in regards to price, quality, consumer choices and costs of production
