Predict the Impact on Organisation and Consumers of Government Policy :: Economics

Predict the Impact on Organisation and Consumers of Government Policy on Industry The government's industrial policies seek to have an impact on organisations and consumers. The government has a wide range of policies effecting three areas: - Monopoly - Privatisation - Location of industry Monopoly and Restrictive Practices Monopoly power may lead to consumers being exploited for example, prices charged above the true marginal cost of supply - leading to excess profits being made by suppliers in the market. Monopoly power can also lead to lower quality output of goods as the protected position of monopolist means that there will be a lack of incentive to improve goods. Because of the potential economic welfare loss arising from the exploitation of monopoly power, the Government regulates some monopolies. Regulators can control annual price increases and introduce fresh competition into particular industries. In terms of regulation of monopoly the government attempts to prevent operations that are against the public interest - so called anti-competitive practices. Problems occur when the market structure in a given industry becomes monopolistic e.g. if a merger or a take-over causes a firm to supply more than 25% of the market output (defined as a working monopoly). The Competition Commission investigates mergers. Oligopolies can also lead to market failure - particularly if there is evidence of collusive behaviour by the dominant businesses within an industry. The Competition Commission The Competition is a public body established by the Competition Act 1998. Formerly known as the Monopolies and Mergers Commission, it came into being on 1st April 1999 The Competition Commission has two main roles: - Reporting on referrals made by the Director General of Fair Trading, the DTI and the main utility regulators - Hearing appeals against prohibitions under the Competition Act 1998 New legislation comes into force from 1st March 2000 and the Competition Commission will hear appeals against decisions made by regulators. Regulators and DGFT will carry out the prohibitions. Regulators have the power to enforce prohibitions and to impose fines of up to 10% of turnover. Prohibitions - These fall into two main categories: Anti-competitive agreements, which include fixing purchasing and selling prices, limiting production, technical development, investment, sharing markets or supply sources and applying different trading conditions to equivalent transactions. Abuse of dominant market position normally where a firm has over 40% of the market and imposing unfair purchasing or selling prices. Referrals to the Competition Commission A last ditch effort if the Director General of Fair Trading cannot remedy the problems. Tends to follow the merger business cycle (very strong at the moment!). Agreement can be reached to rectify the offending area of conflict - ITV companies were requested to reduce advertising sales contracts