In the UK, what is the CMA?
Enjoying Flashcards?
Tell us what you think
In the UK, what is the CMA?
In the UK, the CMA is the Competition & Markets Authority, the regulator tasked with ensuring monopoly power is avoided and consumers are not exploited in markets.
What is meant by the term merger control?
Merger control is the monitoring of merger activity by regulators like the CMA. Conditions for growth may be imposed on any firm that gains a share of the market greater than 25%.
What is meant by price regulation?
Price regulation is the use of maximum prices by regulators to lower prices and increase output in monopoly markets. This is often referred to as price-capping.
True or False?
Profit regulation limits the supernormal profits a monopoly can earn.
True.
Profit regulation limits the supernormal profits a monopoly can earn.
What do quality standards mean?
Quality standards are the legal requirements set by regulators that ensure certain quality levels are met by monopolies.
What are performance targets?
Performance targets are goals set by regulators to raise the quality of service and improve customer satisfaction in monopoly markets.
How can small businesses be encouraged to start up by the government?
The government can encourage small businesses to start up by providing tax incentives or subsidies. This will increase the number of new entrants into industries and make markets more contestable.
What is deregulation?
Deregulation is the removal of government regulations to promote competition and increase market contestability.
Explain what is meant by competitive tendering.
Competitive tendering is the process of outsourcing all or part of government operations through contracts to private sector firms. This increases competition.
What is privatisation?
Privatisation is the transfer of ownership from the public sector to the private sector. This encourages new entrants to an industry.
How can the government protect suppliers from monopsony power?
The government can protect suppliers from monopsony power by implementing anti-monopsony laws. These could include encouraging self-regulation, appointing regulators, subsidising affected firms or setting minimum prices.
What are two ways the government protects employees?
Two ways the government protects employees are through national minimum wage legislation and laws on health & safety (working hours and employment conditions).
What are the five desired outcomes of government intervention?
The five desired outcomes of government intervention are:
affordable and stable prices
normal profits
improved efficiency
better quality
wider choice.
Define regulatory capture.
Regulatory capture is an example of government failure. When firms have significant power and superior knowledge they can influence the regulators to operate in their favour.
What is asymmetric information?
Asymmetric information is when the government or regulators do not have the full and relevant information or do not understand the market they are trying to regulate.
True or False?
Government intervention is always effective.
False.
Government intervention is not always effective. Factors such as regulatory capture and asymmetric information can make it less effective.
What is lobbying?
Lobbying is the practice of firms spending money to influence regulators or politicians who can issue favourable instructions to regulators.
How can regulatory capture affect market outcomes?
Regulatory capture can prevent fair outcomes in the markets concerned.
How can the government increase the effectiveness of lobbying?
The government can improve the effectiveness of lobbying by increasing the transparency of lobbying activity.
Define normal profit.
Normal profit is the minimum level of profit firms must generate in the long run to remain in the industry.
What is the relationship between competition and efficiency?
There is a positive relationship between competition and efficiency. Greater competition can achieve higher efficiency by reducing the wastage of valuable resources.
How does wider choice benefit the economy?
Wider choice improves the standard of living, product quality, innovative economic activity and increases GDP.
True or False?
The government always has perfect information about markets.
False.
The government often lacks full information or understanding of complex markets leading to asymmetric information.
What can happen when government intervention is based on asymmetric information?
Government intervention based on asymmetric information can result in government failure. This is when the intervention creates a net welfare loss.