THE LEGAL ENVIRONMENT - COMPETITION LAW Flashcards
What is a competative market
A competitive market is one where many producers are in competition with each other to meet the needs of many consumers.
The benefits of competitive markets include
More choices (for customers)
Lower prices (for customers, as some competitors will try and win on price)
Better quality and service (competitors are always looking to improve their goods and services for customers)
Profits are made by the businesses best able to meet consumer needs
What does competition law in the UK aim to do:
Reduce anti - competitive practices
Price fixing - It’s illegal - For example: All of the big supermarkets come together and agree to increase the price of carrots to £1 per KG, and as they are all increasing the price, the public won’t have a choice but to pay, if they want/ need carrots.
Predatory pricing - It’s illegal - It’s where a dominant organisation in an industry will see another organisation in the same industry, so the dominant organisation will reduce their prices lower than the competitor, which will drive the smaller organisation out of the market, and once that organisation leaves, the dominant organisation will out it’s prices back up - The dominant organisation may even happily take a loss, to do so, which they can do, as they have enough capital to do so.
Limiting output - Organisations intentionally reduce the output of products, so that they can drive the price up, as the item will be scarce.
Unfair trading terms - When the supplier tries to delegate - for example, if a store really wants to stock a new type of crisps, the company might say that they need to buy other products if they want to buy the crisps, or they might say we will sell you the crisps, only if you remove the other crisp brand on it’s shelf.
Prevent mergers that may result in uncompetitive markets
A market share of anything in excess of 25% is considered to be a legal monopoly
What does legal menopoly mean
A legal monopoly occurs when a government grants exclusive rights to a single entity or a limited number of entities to provide a particular good or service within a specific geographic area. Essentially, it means that only one company or a select few are allowed to operate in a certain industry or offer a specific product or service. This exclusivity is typically granted through government regulations, licences, or patents.
What is the rationale behind legal monopolies
The rationale behind legal monopolies is often to regulate and control essential services, ensure quality standards, or manage natural resources more effectively. However, legal monopolies are sometimes criticised for limiting competition, potentially leading to higher prices and reduced innovation.
Who is competition law overseen by in the UK
Competition law in the UK is overseen by the CMA (Competition & markets authority)
What do the CMA do
Investigating mergers which could restrict competition
Investing markets to assess competitiveness
Investigating where there may be abuses of dominant positions
Enforcing consumer protection legislation
Co-operating with sector regulators and encouraging them to use their competition powers
What are the opportunities generated from competition law
Small businesses able to compete with larger ones
Penetrate new markets where there are dominant businesses
For mergers and acquisitions which improve competitiveness but not restrict competition in the market
What are the threats generated from competition law
Must consider pricing strategies - are they anti-competitive?
Cost of monitoring business practices
