2.11 Government Intervention (COMPETITION POLICY)

Question 1

when is competition policy used

Answer 1

to fix failure in markets where there may be a lack of competition

Question 2

what does it lead too

Answer 2

• customers being charged higher than the market price
• other firms being unable to enter or compete in a market
• lack of choice for consumers
• lack of innovation and development in the market
• firms earning super normal profit
• firms restricting supply to keep prices high

Question 3

what is competition policy

Answer 3

Competition policy is government action aimed at promoting competition, preventing anti-competitive practices, and protecting consumer welfare

Question 4

What are the advantages of competition policy?

Answer 4

Encourages efficiency and innovation

Prevents exploitation of consumers

Leads to lower prices and more choice

Question 5

What are potential drawbacks of competition policy?

Answer 5

Costly and time-consuming to enforce

Risk of government failure

May deter beneficial mergers or economies of scale