Competition Policy

Question 1

Competition policy

Answer 1

Government policies and laws designed to promote competition, prevent anti-competitive behavior and ensure markets work well

Question 2

Aims of UK competition policy

Answer 2

• Promote competition
• Improve efficiency
• Protect consumer welfare
• Prevent market dominance and abuse

Question 3

Main competition policy tools

Answer 3

• Anti-monopoly legislation
• Merger control
• Anti-cartel enforcement
• Market liberalisation
• State aid control

Question 4

Anti-monopoly legislation

Answer 4

Laws preventing firms with dominant market positions from abusing their power to harm consumer welfare

Question 5

Merger control

Answer 5

Regulation of mergers and takeovers to stop firms from becoming too dominant

Question 6

Anti-cartel enforcement

Answer 6

Measures to detect, investigate and punish cartels

Question 7

Market liberlisation

Answer 7

Opining up state-controlled or monopoly markets to private firms and competition

Question 8

State aid control

Answer 8

Rules to prevent governments giving unfair financial support to firms that distorts competition

Question 9

Benefits of competition policy

Answer 9

• Lower prices as firms can’t collude or take advantage of monopoly power
• Greater choice for consumers due to more competition leading to more innovation
• Better quality as firms must compete to retain customers
• Increased levels of productive, allocative and dynamic efficiency

Question 10

Costs of competition policy

Answer 10

• High levels of administrative and enforcement costs
• Risk of government failure
• Uncertainty for firms may discourage investment
• Over-regulation may prevent economies of scale

Question 11

Nationalisation

Answer 11

The transfer of private firms into public ownership

Question 12

Privatisation

Answer 12

The transfer of ownership from the public to private sector

Question 13

Arguments for nationalisation