Lecture notes
Competition
- Institution
- CCEA
A summary of competition and the role of the competition commission.
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What affects the level of competition:Definition:
1. The number of firms in the industry and the relative size: More firms generally means more competition,
Rivalry in which every seller tries to get what other sellers are seeking
However if there are a number of large competitors they may have more power than smaller competitors
at the same time: sales, profit, and market share by offering the
hence reducing competition.
best practicable combination of price, quality, and service. Where
2. If the products are identical competition is easier.
the market information flows freely, competition plays a
3. Barriers to entry: This has a major impact on competition, as fewer firms means less competition. Also
regulatory function in balancing demand and supply. costs needs to be considered as if it is expensive it will be harder and less likely to want to compete.
4. Profit level: When profits are high, competitors are more likely to enter the market as it is more desirable.
Such as mass and niche markets.
Competition Advantages and Disadvantages:
Advantages Disadvantages Competition Commission:
It can force business to become more As firms compete and attempt to cut
efficient and reduce supply costs and costs they may make staff redundant, This is a non-departmental public body responsible for investigating mergers,
this results in a lower price for leading to a higher unemployment
consumers. rate. markets and other enquiries related to regulated industries under competition law
In an attempt to be more competitive, They might move their production in the UK.
the business will provide additional facilities to low wage countries in an It is a competition regulator under the Department for Business, Innovation and
features, at the same price to make attempt to reduce costs. This will
Skills. It ensures healthy competition in the UK which benefits consumers and the
the product more appealing to increase local unemployment.
Competition economy.
customers.
Competition provides consumers with Businesses may lie about their quality It replaced the monopolies and mergers commission on the 1st April 1999.
choice-> more variety. and features in an attempt to make a
sale. This disadvantages the customer. Advantages Disadvantages
Quality-> Generally increases with In an attempt to cut costs they may Lower prices: The best way to gain a high No powers of enforcement: The CC cannot take
more competition as firms want to care less about the environment. As market share, is to offer a better price. legal action, it can only advise the OFT meaning
provide the best quality to remain they will use a production process This means more people can afford the they cannot take immediate action and it may
competitive. which costs the least, this may not be item, and encourages the business to continue, leading to the business continuing to
environmentally friendly.
produce and boosts the economy. This take advantage of the customer.
means the CC will help consumers get
better value for money.
Other organisations to ensure fair competition: As the CC enforces fair competition, The CC is said to prevent business growth as if a
businesses will have to differentiate their business grows and it gains a 25% market share
1. OFT: The OFT is a not-for-profit and non-ministerial government department in the UK, product in order to compete, providing it may be investigated and changes are made
established by the Fair Trading Act 1973 which enforces consumer protection and competition consumers with more choice. which prevent it from growing.
low, acting as the UK's economic regulator. The OFT's goal is to make markets work well for Healthy competition promotes a higher The CC doesn't prevent mergers which reduces
consumers, ensuring vigorous competition between fair dealing businesses and prohibiting unfair level of efficiency which results in lower consumer choice and reduces the total welfare,
practices such as rogue trading, scams or cartels. It studies how markets are working and prices and boosts the economy. This without reducing rivalry. This results in less
attempts to explain and improve awareness and understanding. means consumers will be able to get the consumer choice and they may not be able to
2. Industry Watchdogs: Which is an independent organisation set up to police a particular industry best value for their money. buy the best valued product and may have to
and prevents industries acting illegally. buy the most expensive product.
3. OFcom: Monitors activity in communication industry.
4. OFWAT: Monitors water industry.
5. OFREG: Know known as Utility regulator: Monitors activity in electric/gas/oil etc. industry.
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