3.6
GOVERNMENT INTERVENTION
GOVERNMENT INTERVENTION TO CONTROL
MERGERS
other regulators:
Ofgem - energy industry
Ofwat - water industry
Ofcom - telecommunication industry
FCA - financial market
CMA
CMA - competition and markets authority
CMA investigates mergers and acquisitions and anticompetitive behaviour (e.g
collusion) of legal monopolies and cartels
they may block mergers to protect consumer welfare
CMA will investigate horizontal mergers if:
combined firms will have a combined market share >25% (will become a
legal monopoly)
combined firms will have an annual sales revenue >£70 million
CMA may investigate vertical mergers
e.g blocked mergers
Three and O2
e.g allowed mergers
Three and Vodaphone
CONTROL IN EU
3.6 1
, European commission is responsible for controlling M&A and other
anticompetitive behaviours in EU
it no longer has power in EU
CONTROL MONOPOLIES
PRICE REGULATION
government regulators may regulate price rises in certain industries
in UK price controls are often based on RPI inflation
it allows firms to increase their price in line with inflation
TYPES OF PRICE CAPS
RPI - X
x = efficiency gain
how much the firm needs to decrease their prices by
can help the firm become more efficient when there is a lack of
competition
e.g energy firms had to decrease their prices due to its x-inefficiency
e.g if RPI = 3% and X= 2%, they need to decrease prices by 1%
RPI + K
how much the firm can increase their prices by
in the long run this allows consumers to get better quality g+s and
cheaper prices
e.g thames water was allowed to increase its prices so it could reinvest
and improve the quality of its taps, pipes etc
PROS AND CONS OF PRICE REGULATION
ADVANTAGES
restricts monopoly power - less price making power
3.6 2
GOVERNMENT INTERVENTION
GOVERNMENT INTERVENTION TO CONTROL
MERGERS
other regulators:
Ofgem - energy industry
Ofwat - water industry
Ofcom - telecommunication industry
FCA - financial market
CMA
CMA - competition and markets authority
CMA investigates mergers and acquisitions and anticompetitive behaviour (e.g
collusion) of legal monopolies and cartels
they may block mergers to protect consumer welfare
CMA will investigate horizontal mergers if:
combined firms will have a combined market share >25% (will become a
legal monopoly)
combined firms will have an annual sales revenue >£70 million
CMA may investigate vertical mergers
e.g blocked mergers
Three and O2
e.g allowed mergers
Three and Vodaphone
CONTROL IN EU
3.6 1
, European commission is responsible for controlling M&A and other
anticompetitive behaviours in EU
it no longer has power in EU
CONTROL MONOPOLIES
PRICE REGULATION
government regulators may regulate price rises in certain industries
in UK price controls are often based on RPI inflation
it allows firms to increase their price in line with inflation
TYPES OF PRICE CAPS
RPI - X
x = efficiency gain
how much the firm needs to decrease their prices by
can help the firm become more efficient when there is a lack of
competition
e.g energy firms had to decrease their prices due to its x-inefficiency
e.g if RPI = 3% and X= 2%, they need to decrease prices by 1%
RPI + K
how much the firm can increase their prices by
in the long run this allows consumers to get better quality g+s and
cheaper prices
e.g thames water was allowed to increase its prices so it could reinvest
and improve the quality of its taps, pipes etc
PROS AND CONS OF PRICE REGULATION
ADVANTAGES
restricts monopoly power - less price making power
3.6 2
