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Promoting competition and contestable markets

rename
edwinesosa's version from 2015-05-25 11:39

Section

Question Answer
Examples of sunk costsAdvertising + depreciation of capital goods + industry specific equipment
what do competition policies aim to doprotect public interests
examples of things firms may do that are in public interestsproduce high quality goods and services + theres a wide range of choice + competitive pricing and low costs + employment oppurtunities + availability of supplies (geographically)
who has responsibilty of protect public interestsCMA competition markets authority
responsibilities of UK competition authoritiesinvestigate mergers (where above 25% market share would be obtained) + investigate anti competitive behaviour and abuse of dominant positions (investigating firms with >25%) + enforce consumer protection laws + working with industry regulators eg OFWAT (water) + investigate restrictive practices (collusion)
examples of abusing monopoly powerpredatory pricing + abuse of suppliers (monopsony) + high pricing
powers of competition authoritiescompany and individual fines + stop mergers + order practice to stop + prosecution + order to sell assets
limitations to competition authoritytime lag + not all cases refered + longer term policies such as promoting competion and introducing new firms may be more effective + EU vs UK issues + costs + regulatory capture + asymmetric information
benefits of state ownershipEOS + better at taking into account social welfare + control of monopolies + state has more control over important industries + fairer distribution of income +
benefits of privatisationmore productively efficient + less x inneficient + choice, quallity so allocative efficiency in a broader sense + innovation, dynamic efficiency + money from sale of corporation
problems of privatisationproblems with monopolies + regulatory costs + equality + Externality
memorize

 

Question Answer
When does a natural monopoly occurin an industry where one supplier is needed to fully exploit the fall in LRAC with high output levels
tools of regulatorsprice/ profit limits + performance targets eg service reliability + withdrawal of contracts + increasing competition + fines and punishments
advantages of price capping RPI-Xincentives to lower costs (prod efficiency) + increase allocative efficiency if lower prices
advantages of price capping RPI+Kdynamic efficiency
negatives of price capping RPI-Xhard to choose X due to imperfect info + may neglect quality of service and reduce allocative efficiency
negatives of price capping RPI+KLESS INCENTIVE TO BE PRODUCTIVELY EFFICIENT AND FIRMS MAY BE ALLOCATIVELY EFFICIENT AS PRICES RISE ABOVE MC
advantages of performance targetsthey can b used to try and improve broad allocative efficiency rather than wait for this long term with RPI+K + Firms may invest in tech to improve dynamic efficiency to meet targets
disadvantages of performance targetsmay have to sacrifice profits + may not be correct targets due to imperfect info
How is US style regulation differenttargets profit to equal normal profit to increase allocative efficiency (so price will equal AC)
negatives of US style regulationless incentive to lower average costs once at profit limit so productive inneficiency + allocative inneficiency as P=AC no MC + x inneficiency + less dynamic efficiency as less incentive to invest to lower future costs
memorize