3.6 Gov Intervention Flashcards
(38 cards)
What is the main role of the Competition and Markets Authority (CMA)?
To promote competition for the benefit of consumers and investigate mergers and breaches of competition law
The CMA can impose penalties, prevent mergers, and force businesses to reverse actions.
What does SLC stand for in the context of mergers?
Substantial Lessening of Competition
It refers to the assessment of whether a merger would significantly reduce competition.
Under what conditions is a merger investigated by the CMA?
If it results in market share greater than 25% or meets a combined turnover of £70 million or more.
What is the goal of preventing large companies from merging?
To prevent them from exploiting customers by raising prices, offering poorer quality service, and reducing choice.
True or False: The CMA investigates a large number of mergers each year.
False
Very few mergers are investigated each year.
What is the price regulation formula used by regulators to control monopolists?
RPI-X
X represents expected efficiency gains of firms.
What does the ‘RPI-X+K’ formula include that RPI-X does not?
K, which represents the level of investment.
What is the purpose of setting maximum prices equal to the MSC?
To ensure monopolies are allocatively efficient.
What is ‘rate of return’ regulation used for in the USA?
To set prices allowing coverage of operating costs and earn a fair rate of return on capital invested.
What is the potential problem with ‘rate of return’ regulation?
It gives firms an incentive to employ too much capital to increase profits.
What do quality standards aim to ensure in monopolistic markets?
That firms do not exploit customers by offering poor quality goods.
What is yardstick competition?
Setting performance targets based on the best-performing firms in the industry.
What is the Red Tape Challenge?
An initiative aimed at decreasing regulation, particularly for small businesses.
Fill in the blank: Deregulation is the removal of _______ to allow private enterprises to compete.
legal barriers
What is the impact of competitive tendering?
It minimizes costs for the government and ensures efficiency by allowing competition.
What is the purpose of anti-monopsony laws?
To prevent monopsonists from exploiting suppliers by reducing prices.
What rights does the government protect for workers?
Health and safety laws, employment contracts, redundancy processes, maximum hours, and the right to be in a trade union.
What is the main goal of privatisation?
To revitalize inefficient industries by selling government equity to private investors.
List some advantages of privatisation:
- Encourages greater competition
- Increases accountability of managers
- Reduces public sector net cash requirement (PSNCR)
- Reduces government interference
- Allows for better investment certainty.
What is a disadvantage of nationalisation?
It suffers from principal-agent problems and may lead to X-inefficiency.
What is the impact of natural monopolies on government intervention?
They raise questions about whether it is better for the government to control them to maximize welfare.
What are some impacts of government intervention?
- Prevent monopolies from charging excessive prices
- Ensure fair prices and quality service
- Increase competition and efficiency.
What was the period of high nationalisation known as post WWII?
The golden age.
What can governments do to prevent monopolies?
Governments can prevent monopolies from charging excessive prices and aim to limit their profit
They try to ensure consumers pay fair prices, receive good quality service, and have a lot of choice.
