Product Market Intervention: Practice Questions
Questions-Allow yourself no more than 90 minutes
Extract 1-The Independent, James Moore, Friday 27th January 2017
Wow! I’m excited! So should you be. Why? The bringing together of Tesco with food wholesaler
Booker is going to “delight consumers”.
There is, in fact, something for everyone in the merger announcement. Green lobby? Tick. The deal
will, we are told, reduce waste. Suppliers? Tick. It will present a “broader market opportunity”
whatever that means.
And at the bottom of the announcement, consumers are there again. As well as delighting us the
merger will “create attractive innovation opportunities” to serve us.
Mustn’t forget shareholders. They get synergies and some blah about Tesco retaining market leading
retail and wholesale expertise. Tick! Yep, this £3.7bn cash and share deal is a win, win, win! And
Tesco is trying very hard to make you believe it.
Shareholders also seem pleased, although the 10 per cent jump in the share price had a lot to do
with the company’s promise to start paying dividends again.
But not everyone is so cheerful.
Tesco CEO David Lewis has publicly stated that he doesn’t expect many issues with the Competition
& Markets Authority, even though the addition of the franchise operators that run outlets in Booker's
Londis, Budgens and Premier store chains, will give his company unprecedented influence and clout
within the convenience store sector.
But the excitable talk of a win win for every group imaginable in Tesco’s announcement suggests the
company sees the potential for trouble ahead. It indicates that the group wants to get on the front
foot because while the stock market might love the deal, other stakeholders are less pleased.
The British Independent Retailers Association says the takeover "must raise concerns amongst
independents and, hopefully, the competition authorities" given the power the new organisation will
have. It fears any short-term gain from the deal won't last and consumers may ultimately suffer
along with its members. The Association of Convenience Stores is more equivocal. It says some
retailers might welcome the news. But it concedes that others will feel “uneasy”.
Extract 2-Ofgem: Price Controls Explained pamphlet
Ofgem, as the regulator, sets price controls for the companies that operate Britain’s gas and
electricity networks. This factsheet explains why price controls are needed, how they work and what
they mean for the domestic consumer. Price controls are needed as these networks are natural
monopolies and therefore there is no realistic way of introducing competition across the whole
sector. Price controls are a method of setting the amount of money (allowed revenue) that can be
earned by the network companies over the length of a price control. These companies recover their
allowed revenues from their charges to suppliers who in turn pass these costs through to customers.
The revenues have to be set at a level which covers the companies’ costs and allows them to earn a
reasonable return subject to them delivering value for consumers, behaving efficiently and achieving
their targets as set by Ofgem.
Questions-Allow yourself no more than 90 minutes
Extract 1-The Independent, James Moore, Friday 27th January 2017
Wow! I’m excited! So should you be. Why? The bringing together of Tesco with food wholesaler
Booker is going to “delight consumers”.
There is, in fact, something for everyone in the merger announcement. Green lobby? Tick. The deal
will, we are told, reduce waste. Suppliers? Tick. It will present a “broader market opportunity”
whatever that means.
And at the bottom of the announcement, consumers are there again. As well as delighting us the
merger will “create attractive innovation opportunities” to serve us.
Mustn’t forget shareholders. They get synergies and some blah about Tesco retaining market leading
retail and wholesale expertise. Tick! Yep, this £3.7bn cash and share deal is a win, win, win! And
Tesco is trying very hard to make you believe it.
Shareholders also seem pleased, although the 10 per cent jump in the share price had a lot to do
with the company’s promise to start paying dividends again.
But not everyone is so cheerful.
Tesco CEO David Lewis has publicly stated that he doesn’t expect many issues with the Competition
& Markets Authority, even though the addition of the franchise operators that run outlets in Booker's
Londis, Budgens and Premier store chains, will give his company unprecedented influence and clout
within the convenience store sector.
But the excitable talk of a win win for every group imaginable in Tesco’s announcement suggests the
company sees the potential for trouble ahead. It indicates that the group wants to get on the front
foot because while the stock market might love the deal, other stakeholders are less pleased.
The British Independent Retailers Association says the takeover "must raise concerns amongst
independents and, hopefully, the competition authorities" given the power the new organisation will
have. It fears any short-term gain from the deal won't last and consumers may ultimately suffer
along with its members. The Association of Convenience Stores is more equivocal. It says some
retailers might welcome the news. But it concedes that others will feel “uneasy”.
Extract 2-Ofgem: Price Controls Explained pamphlet
Ofgem, as the regulator, sets price controls for the companies that operate Britain’s gas and
electricity networks. This factsheet explains why price controls are needed, how they work and what
they mean for the domestic consumer. Price controls are needed as these networks are natural
monopolies and therefore there is no realistic way of introducing competition across the whole
sector. Price controls are a method of setting the amount of money (allowed revenue) that can be
earned by the network companies over the length of a price control. These companies recover their
allowed revenues from their charges to suppliers who in turn pass these costs through to customers.
The revenues have to be set at a level which covers the companies’ costs and allows them to earn a
reasonable return subject to them delivering value for consumers, behaving efficiently and achieving
their targets as set by Ofgem.
