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UK Competition Policy

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A presentation describing the purpose of UK competition policy, the effect of different market structures and a few frameworks for assessing the competitiveness of markets. It does not deal with contestable market theory. This can be found in a separate presentation – PowerPoint PPT presentation

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Title: UK Competition Policy


1
UK Competition Policy
2
Reading
  • Lawrence and Stoddard Chapter 6

3
Aim of Competition Policy
  • There are 3 main aims to UK competition law
  • prohibiting agreements or practices that restrict
    free trading and competition between business
    entities. This includes in particular the
    repression of cartels.
  • banning abusive behaviour by a firm dominating a
    market, or anti-competitive practices that tend
    to lead to such a dominant position. Practices
    controlled in this way may include predatory
    pricing, tying, price gouging, refusal to
    deal and many others.
  • supervising the mergers and acquisitions of large
    corporations, including some joint ventures.
    Transactions that are considered to threaten the
    competitive process can be prohibited altogether,
    or approved subject to "remedies" such as an
    obligation to divest part of the merged business
    or to offer licences or access to facilities to
    enable other businesses to continue competing.

4
Assessing CompetitivenessStructure, Conduct,
Performance
5
Assessing CompetitivenessStructure, Conduct,
Performance
6
Assessing CompetitivenessStructure, Conduct,
Performance
7
Assessing CompetitivenessStructure, Conduct,
Performance
8
Assessing CompetitivenessStructure, Conduct,
Performance
  • Restrictive Practice
  • This is a more general term to cover deliberate
    efforts by any firm with market power to gain
    more power. Example include
  • Resale Price Maintenance fixing the price
    retailers charge for your product
  • Refusing to sell to outlets that offer goods at
    too low a price or that stock competitors brands
  • Full line forcing supplying retailers if they
    stock your entire range
  • Pressurising suppliers not to supply competitors

9
Assessing CompetitivenessPorters 5 Forces
Click Each Factor for more information or just
click through the slides to see them in order.
10
Assessing CompetitivenessPorters 5 Forces
  • Risk of new entrants would create more
    competition reduce profit margins
  • Factors making this likely are
  • High profits being made
  • Low barriers to entry
  • Easy availability of credit
  • Forgiving bankruptcy laws

11
Assessing CompetitivenessPorters 5 Forces
  • The ability of buyers to determine price etc.
  • Influenced by
  • Does the firm have a monopsony buyer?
  • Can the buyers form consumer groups to gain
    power?
  • The extent of vertical integration

12
Assessing CompetitivenessPorters 5 Forces
  • How likely are consumers to move from your
    product to a substitute?
  • Influenced by
  • Number of similar products available (patent
    protection, barriers to entry, etc)
  • Brand loyalty
  • Importance of product quality (crisps vs.
    lifeboats!)

13
Assessing CompetitivenessPorters 5 Forces
  • Do the firms supplying FoP have ability to
    dictate prices, delivery dates, quantities, etc.
  • Influenced by
  • Number of buyers
  • Number of suppliers
  • Collusion of suppliers (OPEC)
  • Operational sensitivity of product.
  • The extent of vertical integration

14
Assessing CompetitivenessPorters 5 Forces
  • Are there many firms in the market competing
    fiercely
  • Are there a couple of firms controlling the
    market
  • Other factors affect this but it is also a factor
    in its own right

15
Regulating Anti-Competitiveness Tools
  • Regulators and the CC/OFT have a number of
    options
  • Fines up to 10 of global turnover for the
    highest year in the last few years
  • Compulsory break up of companies
  • Price Controls
  • Rate of Return
  • RPI X price cap
  • Windfall taxes on excessive profits
  • Requiring a certain spend on investment
  • Imposing efficiency targets
  • Nationalisation
  • Privatisation

16
Regulating Anti-Competitiveness Tools
  • Threat
  • While the authorities can and do impose sanctions
    it is rare for companies to even be investigated
    let alone penalised.
  • The reason for this is
  • Just the threat of these sanctions is enough to
    deter most companies
  • It is very hard to find sufficient evidence in
    most cases.
  • Regulators and the CC/OFT have a number of
    options
  • Fines up to 10 of global turnover for the
    highest year in the last few years
  • Compulsory break up of companies
  • Price Controls
  • Rate of Return
  • RPI X price cap
  • Windfall taxes on excessive profits
  • Requiring a certain spend on investment
  • Imposing efficiency targets
  • Nationalisation
  • Privatisation
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