The main aims of competition policy are to promote competition; make markets work better
and contribute towards improved efficiency in individual markets and
enhanced competitiveness of UK businesses within the European Union (EU)
single market.
Competition policy aims to ensure
- Technological innovation which promotes dynamic efficiency in different markets
- Effective price competition between suppliers
- Safeguard and promote the interests of consumers through increased choice and lower price levels
There are four key pillars of competition policy in the UK and in the European Union
- Antitrust & cartels: This involves the elimination of agreements that restrict competition including price-fixing and other abuses by firms who hold a dominant market position (defined as having a market share in excess of forty per cent)
- Market liberalisation: Liberalisation involves introducing competition in previously monopolistic sectors such as energy supply, retail banking, postal services, mobile telecommunications and air transport
- State aid control: Competition policy analyses state aid measures such as airline subsidies to ensure that such measures do not distort the level of competition in the Single Market
- Merger control: This involves the investigation of mergers and take-overs between firms (e.g. a merger between two large groups which would result in their dominating the market)
Main Roles of the Regulators
- Regulators are the rule-enforcers and they are appointed by the government to oversee how a market works and the outcomes that result for producers and consumers
- The main competition regulator in the UK is the Competition and Markets Authority (CMA)
- The European Union Competition Commission is also an important body for the UK
Examples of competition policy in action
- De-regulation - laws to reduce monopoly power
- Preventing mergers/acquisitions that create a monopoly
- Laws to introduce competition into the postal services industry
- Forced sales of assets e.g. BAA and airports in the UK
- Privatisation - transferring ownership
- Stock market floatation of the Royal Mail
- Part-privatisation of Network Rail similar to the sell-off of HS1 - the high-speed link that connects London's St Pancras to the Channel tunnel, on a long-term concession
- Tough laws on anti-competitive behaviour
- Strong laws and penalties against proven cases of price fixing or collusion that involves market sharing
- Companies breaching EU and UK competition rules risk hefty fines of up to 10 per cent of global turnover - senior executives can be jailed
- Reductions in import controls
- A reduction in import tariffs encourages cheaper products from overseas
- Increasing or eliminating import quotas can also have the same effect
- Allowing new countries into the European Union single market increases contestability
Source: Tutor2u
