Market structures Whistle blowing and uk
cartel policy
Competition policy
Allows businesses who are
members of cartels to become
a whistle blower and inform
on other members of a price
Competition policy - directed by the government and aims to make markets more competitive xing agreement.
Benefits of competition • They received a reduced
For consumers - lower prices, more choice, better quality, new products = increased consumer welfare nancial penalty and avoid
For rms - greater incentive to be economically ef cient and to innovate the penalty.
• full cooperate with
investigation to stop all
Competition policy uk involvement
Two independent authorities responsible for enforcing competition policy in the UK
1) of ce of fair trading (OFT)
2) competition commission (CC) responsible for detailed investigation into merger, market and regulatory issues referred to
it by the OFT
Investigates Powers
• cartels . • Fine rms up to 10% of sales revenue
• Price xing • Block mergers
• Mergers and takeovers where market share is >25% • Referring cases for possible criminal investigations
• Restrictive practices
• Predatory pricing
• Complaints by consumer groups
Anti -competitive behaviour Polices to mare markers more competitive
1) predatory pricing • Enterprise policy -encourage growth of small rms
2) restricting supply - to force up prices • Legislation -eg. Price xing is illegal
3) full-line forcing • Reducing barkers to entry eg. Unnecessary legal requirements
4) creating arti cial barriers to entry e.g. Exclusive • Merger controls - can be blocked
contracts with outlets • Deregulation eg. allowing more private sector involvement
5) collusion; cartels; price xing; dividing markets. • Regulation of certain sectors via price contras and performance
6) agreements bet ween rms on types cf goods to produce targets -acts as a surrogate for competition
and/or to promote investment in
Examples
Competitive markets Monopoly regulation Yo-yo pricing 2012
p deadweightwelfare consumer
8 supermarkets have agreed to ensure that
ioss
o uerauios.to p special offers and price promotions are fair
pm societyattermovingerom
perfect to
competition recoverd
surplus • Misleading promotions
monetary pm gmc • Prices arti cially in ated to make discounts
u
pc new look more attractive
pc maxprice
recorded
producersurmus
2009 Intel ned a record of £948m by European
mr ar Commission for anti-competitive practices
am apc output mr arm • paid manufactures to favour its products
am Qc output • Deliberately kept competition out of the
market
Legal collusion /business cooperation
Not all instances of collusive behaviour is deemed illegal 2015 Telecoms rm orange ned £254m for
abusing its market dominance France
1) development cf improved industry standards of production and safety and
bene t the consumer 2015 EU competition commission accused Google
2) information sharing designed to give better information to consumers of illegally abusing its dominance in web search
3) research joint ventures and know how agreements which seem to promote to steer European consumers to its own in-house
shopping ser vices
innovative and incentive behaviour in the market. The EU
Has introduced a 'RnD block exemption regulation’ for this 2014 5 banks ned, including JP Morgan for
rigging markets
• attempted to manipulate foreign exchange
Main pillars of competition policy market
1) Anti -trust and cartels
• Elimination of agreements that restrict competition including price xing by rms who hold a dominant market position
2) market liberalisation
• Introducing competition in previously monopolistic sectors such as energy supply, retail banking, postal ser vices
3) state aid control
• Policy analyse state aid measures such as airline subsidies to ensure that measures do not distort competition in the single market
4) merger control
• Investigation of mergers and take-overs bet ween rms which could result in their dominating markets
Evaluation
1) price regulation encourages rms to nd ef ciency savings, to cut cash as much as possible in hope to change
regulated prices and still make a pro t as costs have been cut by more than the price increase
• Reduced quality
• Cut costs may come at expense at consumer safety, may be dangerous
2) regulation is very costly in maintaining existence of regulatory bodies and in both administration and
Enforcement of regulation
• Op cost
• Regulation creates are intended consequences
• May not be strict to promote socially optimum output
3) strict performance targets eg. GPS seeing a certain number of patients in an hour may lead to unintended
consequences
• Short cuts may be taken and mistakes due to rushing to meet targets
4) strict performance targets may lead to “gaming the system"
• Heightened regulations will promote such behaviour by rms going against the intentions of the policy
• Example train companies to avoid nes for excessive delays may length the journey time beyond what is
true to compensate for potential delays
5) pro t regulation requires regulators to have perfect knowledge of costs and revenues, however asymmetric
information
• Strong incentive to over report costs to increase permitted pro t
6) taxes could be applied on monopoly pro ts to incentivises the rm to decrease prices and reduce overall
pro t
• Tax collected could be used to ef ciently enforce regulation and existence of regulatory bodies
7) taxation increases mc for monopolists, resulting in increased prices and reduced quantities at pro t
maximising level
• Worsened outcome for consumers
• Greater misallocation of resources
• Opposite intention of the policy
• Increased tax also leads to tax avoidance and evidence
• High pro ts are also needed for R&D, innovation and new technology, reducing consumer bene ts
