Government intervention - competition policy
Author: Geoff Riley Last updated: Sunday 23 September, 2012 The aim of competition policy is promote competition; make markets work better and contribute towards improved efficiency in individual markets and enhanced competitiveness of UK businesses within the European Union single market. Competition policy aims to ensure
Wider consumer choice
Technological innovation which promotes dynamic efficiency
Effective price competition between suppliers
There are four key pillars of competition policy in the UK and in the European Union Antitrust & cartels: This involves the elimination of agreements that seek to restrict competition including price-fixing and other abuses by firms who hold a dominant market position (defined as having a market share in excess of forty per cent). Market liberalisation: Liberalisation involves introducing fresh competition in previously monopolistic sectors such as energy supply, postal services, mobile telecommunications and air transport. State aid control: Competition policy analyses examples of state aid measures to ensure that such measures do not distort competition in the Single Market Merger control: This involves the investigation of mergers and take-overs between firms (e.g. a merger between two large groups which would result in their dominating the market). Main Roles of the Regulators
Regulators are the rule-enforcers and they are appointed by the government to oversee how a market works and the outcomes that result for both producers and consumers. Examples of regulators include the Office of Fair Trading and the Competition Commission. The European Union Competition Commission is also an important body for the UK economy. The EU Competition Commission is an important regulator of business activity in the single market. The main UK regulators (namely the Office of Fair Trading and the Competition Commission) are to merge in 2011 as part of a competition reform by the new coalition government. Monitoring and regulating prices: Regulators aim to ensure that companies do not exploit their monopoly power by charging excessive prices. They look at evidence of pricing behaviour and also the rates of return on capital employed to see if there is evidence of ‘profiteering.’ Recently the EU Competition Commission made a ruling on the ‘roaming’ charges of mobile phone operators in the EU and enforced a new maximum price on such charges. Standards of customer service: Companies that fail to meet specified service standards can be fined or have their franchise / license taken away. The regulator may also require that unprofitable services are maintained in the wider public interest e.g. BT keeping phone booths open in rural areas and inner cities; the Royal Mail is still required by law to provide a uniform delivery service at least once a day to all postal addresses in the UK Opening up markets: The aim here is to encourage competition by removing barriers to entry. This might be achieved by forcing the dominant firm in the industry to allow others to use its infrastructure network. A key task for the regulator is to fix a fair access price for firms wanting to use the existing infrastructure. Fair both to the existing firms and also potential challengers. The surrogate competitor: Regulation can act as a form of surrogate competition – attempting to ensure that prices, profits and service quality are similar to what could be achieved in competitive markets. Fear of action by OFT and other regulators may prevent anticompetitive behaviour (i.e. there will be a deterrent effect) The key role of competition authorities around the world including the European Union is to protect the public interest, particularly against firms abusing their dominant positions - A firm holds a dominant position if its power enables it to operate within the market without taking account of the reaction of its competitors or of intermediate or final consumers....
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