Competition policy Flashcards
Competition policy
government intervention to make markets more competitive
Vertical integration
integration moving along the supply chain
Horizontal integration
mergers/take overs between substitutes
Reasons for monopolies being desirable
International competitiveness, means for dynamic efficiency, makes sense for natural monopoly
CMA ?
Competition and markets authority, the regulatory body which regulate the product market
How does the CMA know if monopolies are abusing their power?
Looking at profits, concentration ratio, market conduct, compare prices, consumer and trade complaints
Reasons for state ownership
Prevents abuse of monopoly power, more allocative efficiency, make sense for natural monopoly, needed for public goods.
Example of barriers to entry
patents, predatory pricing, branding, high MES/economies of scale, collusion, high start-up costs, control of supply chain, regulation, sunk costs
A contestable market
Where there is free exit and entry of firms
features of contestable market
No firms have a significant market share, freedom of entry/exit to the market, firms compete and do not collude to fix prices, firms don’t produce homogenous goods, there is perfect knowledge
Hit and run entry
when a new firm enters the industry, cream off some supernormal profits and then leave
Is monopoly a market failure ?
No. But monopoly power is.
