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Government intervention (Government intervention to control monopolies…
Government intervention
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Competition policy is the means by which governments of countries and groups of countries seek to restore and maintain competition in markets to ensure the markets work efficiently and consumer welfare is improved
The aim of competition policy is to ensure that any action that prevents restricts or distorts competition is blocked and that fair trading is enforced and that collusion and predatory pricing is stamped out
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Profit regulation
This method allows a firm to make a certian level of profut based n its capitla stock before the remainder of the profit is taxed at 100%. Unlike the pric-capping sysytem this means that there is no incentive to make effeiecy gains that increase profits.
Firms are not rewarded for their success on the contrary, they are penalised for it and instead encouraged to make limited profit. Any excess profit is therefore spent of additional capital to increase the level of capital stock and therefore allowable profit while increasing the level of efficiency. At the same time, firms are encouraged to overstate the value of their capital or embark on wasteful spending to ensure that they can increase the rate of return on their investment, in effect increasing their profits and therefore profit regulation is being replaced by price or revenue caps in the USA
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Privatisation, competitive tendering and deregulation
Privatisation is the process by which the government transfers the ownership of a state-owned enterprise prom the public sector to the private sector. A recent example has bee the scale of Royal Mail into the private sector. Now with stakeholders to satisfy the newly privatised firm will seek to maximise profits and therefore to make significant increases in sales and efficiency. thus reducing the cost
When it is possible these firms will be allowed to compare with other firms, such as in the case of the telecommunications industry where consumers have the choice whether or not to use BT, the previous state monopoly now one of the competitors in the market. Where it is not possible to create competition the state will regulate the industry as a monopoly.
Some activities that were previously undertaken by the government are now performed by the private sector on behalf of the government, in jobs that have been contracted out. These include the movement of prisoners, which is subcontracted to the private sector and hospital catering and cleaning. The process by which these contracts are won i know as competitive tendering and often the results in the cheapest, most cost-effective bid winning. However, as firms compete to lower their bids and therefor charge governments less for the contract, savings and therefore sacrifices in quality may have to be made
Finally, certain markets such as the bus sector have been opened to competition through deregulation in the market. This process in which barriers to entry are removed means that any firms within reason can set up a company to operate in a market, thereby creating competition reducing prices increasing quality and thus benefiting the consumer
Government intervention to protect supplier and employees - the government will intervene in ways described through the CMA as well as through legislation and the creation of competition, to increase competition and therefore reduce the power of a monopolist. For example the CMA is investigating supermarkets to determine whether or not they are exploiting their market dominance getting unfair prices from their supplier. They could be fined if they have played in a anti-competitive way through scant comparison for those suppliers that have gone out of benefits
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