3.6 government intervention not finished

Question 1

what does the CMA do (competition and markets authority)

Answer 1

-work to promote competition for the benefit of the consumer and investigate mergers and breaches of UK and EU competition law, enforce consumer protection law and bring criminal cases to those who participate in cartels
-are able to impose financial penalties, prevent mergers taking place and force businesses to reverse actions already taken

Question 2

controlling mergers

Answer 2

-CMA will consider the likely competitive situation if the merger goes ahead compared to if it doesn’t and will be approved if potential benefits are higher than its costs
-merger is investigated if its market share is over 25% or if it has a combined turnover of £70 million or more
-aim is to prevent exploitation of customers by raising price, offering lower quality and reducing choice
-however, very few mergers ate investigated each year so the CMA can suffer from regulatory capture and may not have all the information necessary to make a decision

Question 3

how to control mergers

Answer 3

-price regulation
-profit regulation
-quality standards
-performance targets
-

Question 4

price regulation

Answer 4

-regulators can set up price controls to force monopolists to charge a price below profit maximising price
-gives an incentive to firms to become more efficient as lower costs will mean higher profit
-however it is difficult for governments to know where they should set the price as they do not know the exact allocative efficient output

Question 5

profit regulation

Answer 5

-aims to encourage investment and prevent firms from setting high prices however it gives firms an incentive to employ too much capital in order to increase their profits
-little incentive to be efficient and regulators must need sufficient knowledge of the industry and so will suffer from asymmetric information

Question 6

performance targets

Answer 6

-set targets over price, quality and consumer choice and cost of production
–however some firms may resist or attempt ways to meet targets without actually improving them e.g changing train timetables to prevent trains officially arriving late

Question 7

promoting competition and contest ability

Answer 7

-promotion of small businesses
-deregulation
-competitive tendering

Question 8

promotion of small businesses

Answer 8

-government gives grants and training to new entrepreneurs and encourage small businesses through tax incentives or subsidies