UK Competition Policy

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UK Competition Policy
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Reading

• Lawrence and Stoddard Chapter 6

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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.

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Assessing CompetitivenessStructure, Conduct,
Performance
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Assessing CompetitivenessStructure, Conduct,
Performance
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Assessing CompetitivenessStructure, Conduct,
Performance
Structure Conduct Performance
Perfect Competition No RD Price Competition Normal Profit PMC Allocative Efficiency Productive Efficiency
Monopolistic Competition Local Market Power Norma Profit ACAR Allocative Inefficiency Productive Inefficiency
Oligopoly Non-Price Competition Collusion? Innovation? High BTE P ? MC Allocative Inefficiency X Inefficiency Dynamic Efficiency ?
Monopoly High BTE Total Market Power Limit Entry Pricing? Natural Monopoly? P?MC Allocative Inefficiency Productive Inefficiency X Inefficiency
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Assessing CompetitivenessStructure, Conduct,
Performance
Structure Conduct Performance
Perfect Competition No RD Price Competition Normal Profit PMC Allocative Efficiency Productive Efficiency
Monopolistic Competition Local Market Power Norma Profit ACAR Allocative Inefficiency Productive Inefficiency
Oligopoly Non-Price Competition Collusion? Innovation? High Profit Margins P ? MC Allocative Inefficiency X Inefficiency Dynamic Efficiency ?
Monopoly High Profit Margins Total Market Power Limit Entry Pricing? Natural Monopoly? P?MC Allocative Inefficiency Productive Inefficiency X Inefficiency
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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

Structure Conduct Performance
Perfect Competition No RD Price Competition Normal Profit PMC Allocative Efficiency Productive Efficiency
Monopolistic Competition Local Market Power Norma Profit ACAR Allocative Inefficiency Productive Inefficiency
Oligopoly Non-Price Competition Collusion? Innovation? High Profit Margins P ? MC Allocative Inefficiency X Inefficiency Dynamic Efficiency ?
Monopoly High Profit Margins Total Market Power Limit Entry Pricing? Natural Monopoly? P?MC Allocative Inefficiency Productive Inefficiency X Inefficiency
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Assessing CompetitivenessPorters 5 Forces
Click Each Factor for more information or just
click through the slides to see them in order.
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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

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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

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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!)

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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

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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

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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

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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