Regulation and Competition Policy

18 flashcards · Economics · by Addaneye

1. 4 tools CMA can use to prevent big firms abusing their market power

   merger policy price regulation profit regulation performance targets and quality standards

2. Two reasons a merger will be investigated

   If the two firms will have a combined market share of over 25% If the merging firms have a combined market share of above £70m

3. What are the two types of price regulation?

   RPI + k RPI - x

4. What is regulatory capture?

   When regulators begin to favour the firms they are regulating

5. Examples of regulatory capture

   low quality standards Increase price by too much

6. Real life example of regulatory capture

   When regulators grew fond of BP's staff and gave them free drill permits to drill in the gulf of Mexico without properly checking if it was safe, which later led to an oil spill

7. What is profit regulation?

   When a firms' profits are taxed at 100% above a certain limit

8. How does profit regulation prevent market abuse?

   Incentivises firms to reinvest profits into the company and improve quality of service they provide

9. Why may profit regulation not work?

   Removes the profit incentive which may make firms lazy

10. What are performance targets?

    Targets for firms to meet, to ensure they're providing a top quality service

11. What are quality targets?

    Standards of quality firms have to meet to be able to sell their goods and services

12. 4 ways to promote contestability

    Deregulation Privatisation Stopping anti-competitive practices Helping small business

13. What is deregulation?

    When regulations are removed to reduce barriers to entry

14. What is privatisation?

    When the government transfers ownership of a public sector firm the private sector

15. What is competitive tendering?

    When the government outsources specific job contracts to the private sector. Private sector firms bid to win these contracts by offering the best deals

16. Why is competitive tendering beneficial for the government?

    By having private sector firms compete with each other, they are likely to undercut each other's prices and offer better quality

17. 3 ways governments help small businesses grow?

    Access to loans R&D tax breaks Subsidies

18. What is nationalisation?

    When the private sector transfers ownership of a private sector firm to the government