A* summary on government intervention

3.6.1 Government intervention
a) Government intervention to control mergers
Competition and Markets Authority (CMA)
Def: Aim to reduce monopoly power + promote competition + protect consumer
interest
Manages cartels, merges, support SMEs
Monopolies Competition Employees
 Profit cap  Promotion of small  Restriction of
 Price cap businesses monopsony power
 Quality standard  Deregulation  Nationalization
 Performance target  Privatization
 Breaking up monopoly
 Preventing mergers



b) Government intervention to control monopolies:
 Profit cap
 Price cap
 Quality standard
 Performance target


 price regulation
To prevent monopoly prices




However,
 Reduce incentive to enter the industry  becoz less profit
 Dynamic inefficiency
 Difficult to place a monetary value of price

,  profit regulation




However,
 Might increase VC to reduce its profit  productively inefficient
 Dynamic inefficient
 Less firms would like to enter the market  not increase comp (against the aim)


 quality standards
Def: Laws imposed by the government or CMA to ensure firms meet the
minimum standards


 performance targets
Def: A goal set by a the government/CMA for firms to achieve
If cannot achieve geh consequence is fine = fine act as a deterrent to firms as it
might reduce their profit + explain the role of CMA


c) Government intervention to promote competition and contestability:
 Promotion of small businesses
 Deregulation
 Privatization
 Breaking up monopoly
 Preventing mergers


 Promotion of small businesses (=supply side policy)
(Increase competition & keep big firms to lower their production costs)
+ regulations to make SME develop
e.g. ‘Help to grow scheme’
Support and discounts to help small and medium-sized UK businesses find, buy
and adopt digital technologies to improve productivity