Pack 10: Government intervention Flashcards
(42 cards)
What is regulatory capture?
When firms in an industry are able to influence the regulatory body to their advantage
What is Asymmetric information?
Situation where one party has more information than another
In what ways can businesses gaining more monopoly power lead to economic inefficiency and exploitation of consumers?
~Higher prices
~Lower quality
~Reduced choice
What is the regulatory body in the UK that ensures competition is maintained in industries?
Competition and Markets Authority (CMA)
In what situations will mergers and takeovers be referred to the CMA?
~If it involves or creates a firm with over 25% market share
~Involves acquiring/merging with firm having more than £70 million assets worldwide
What does the CMA promoting public interests and maintaining competition in markets hopefully lead to for consumers?
~Lower prices
~Improved choice and quality
~Improved allocative and productive economic efficiency
What are the limitations of government intervention to control mergers?
~Time lags
~Asymmetric information
~Regulatory capture
~Issues of global mergers and takeovers (multiple competition authorities involved)
What is privatisation?
Transfer of assets from the public (government) sector to the private sector
What are the potential benefits of privatisation?
Profit motive, better incentive for allocative and productive efficiency. Can raise finance through stock market to promote dynamic efficiency
What are the limitations of privatisation?
~Creation of private sector monopolies
~Need for regulation
~Issues of private sector businesses cutting costs
What is deregulation?
Opening up of markets by reducing barriers to entry with the aim of promoting competition and contestability
What are the benefits of deregulation?
Businesses will need to compete by lowering prices and improving range / quality of products. Should lead to higher consumer welfare and allocative and productive efficiency
What are the limitations of deregulation?
~Lack of new business entry
~Lack of customer switching
What is promoting small businesses?
Measures by government that help support the establishment and growth of entrepreneurs and their associated enterprises
What are the methods the government can use to promote small businesses?
~Lowering barriers to entry (finance or reducing legal requirements)
~Encouraging consumer switching
~Improved education and training
What should the promotion of small businesses lead to?
Greater market contestability and competition
What are the limitations of the government promoting small businesses?
~Will enough set up?
~Will they be able to compete?
~Time lag
~Cost implications (opportunity cost)
What is competitive tendering?
Introducing competition among private sector firms which put in bids for work which is contracted out by the public sector
What are the benefits of competitive tendering?
Competition among bidders will lead to lower prices and higher quality with more innovative approaches. Greater allocative and productive efficiency
What are the limitations of competitive tendering?
~Collusive tendering
~Impact of cost cutting
~Failure of the private sector business
~Time lag
What are the methods of controlling monopolies?
~Profit regulation
~Price regulation
~Quality standards
~Performance targets
What are the other two main areas that the CMA focuses on outside of controlling mergers and takeovers?
~Investigating anti-competitive behaviour and abuse of dominant positions
~Investigating restrictive practices
What is price regulation?
System where the regulator sets limit on price increases in a industry for a set period of time, such as using RPI - X and RPI + K price caps
What is RPI - X?
Increases price by inflation minus the perceived efficiency gains deemed possible by regulator
