Competition Policy and Privatisation

What Competition Policy and Privatisation covers

Competition Policy and Privatisation is examined in Microeconomics — assessed across all three components. It covers why governments are concerned about monopoly power, merger control and market investigations, cartels, restrictive practices and abuse of dominance, competition authorities and how they work, regulating natural monopolies and the utilities, contestable markets and barriers to entry, the limits of competition as a policy goal, privatisation and the forms it takes and evaluating privatisation and the case for renationalisation.

The 9 subtopics

Each one has its own page.

• Why governments are concerned about monopoly powerMonopoly power in a market, allocative inefficiency and deadweight welfare loss in the context of monopoly.Open →
• Merger control and market investigationsTwo-stage structure of a United Kingdom merger inquiry, market investigation and efficiency defence a merging firm may offer.Open →
• Cartels, restrictive practices and abuse of dominanceThree forms a cartel agreement can take, bid rigging and how a leniency programme helps break a cartel.Open →
• Competition authorities and how they workThree functions of a competition authority, sector regulator and promoting contestability rather than competition.Open →
• Regulating natural monopolies and the utilitiesHow RPI−X price capping works, main drawback of setting the efficiency factor too high and rate-of-return regulation.Open →
• Contestable markets and barriers to entrySunk costs, hit-and-run entry and one criticism of the contestable markets model.Open →
• The limits of competition as a policy goalWhy competition can improve quality as well as price and creative destruction.Open →
• Privatisation and the forms it takesPublic-private partnership, private Finance Initiative and how privatisation may increase competition.Open →
• Evaluating privatisation and the case for renationalisationEfficiency argument for privatisation, principal-agent argument for privatisation and natural monopoly argument for renationalisation.Open →

What you need to know

Answer each one before you reveal it.

Take Competition Policy and Privatisation further

The same content, four other ways.

Questions from this topic

Each one with the model answer underneath.

1. 1

   What is meant by monopoly power in a market?

   Model answer

   Monopoly power is the ability of a firm to set its own price rather than accept the market price. A firm with a large market share usually holds such power.

2. 2

   Give the main reason a government worries about a firm with monopoly power.

   Model answer

   A monopolist can restrict output and charge a price above marginal cost. Consumers then pay more and buy less than in a competitive market.

3. 3

   What is allocative inefficiency, and why does monopoly cause it?

   Model answer

   Allocative inefficiency occurs when price does not equal marginal cost, so resources do not match consumer preferences. A monopolist prices above marginal cost and so produces below the allocatively efficient output.

4. 4

   Define deadweight welfare loss in the context of monopoly.

   Model answer

   Deadweight welfare loss is the loss of consumer and producer surplus caused by output being held below the efficient level. The lost surplus is not transferred to anyone.

5. 5

   Explain what X-inefficiency is and why monopoly encourages it.

   Model answer

   X-inefficiency means a firm's average costs sit above the lowest attainable level for its output. A monopolist protected from rivals faces little pressure to control those costs. Harvey Leibenstein named the idea in 1966.

6. 6

   How can monopoly power harm suppliers rather than consumers?

   Model answer

   A dominant buyer can force suppliers to accept prices close to their costs. Small suppliers with few alternative buyers have little bargaining strength.

What is inside Levo

Six ways to work the same material.

Competition Policy and Privatisation revision questions

What does Competition Policy and Privatisation cover in Eduqas A-Level Economics?

9 subtopics: why governments are concerned about monopoly power, merger control and market investigations, cartels, restrictive practices and abuse of dominance, competition authorities and how they work, regulating natural monopolies and the utilities, contestable markets and barriers to entry, the limits of competition as a policy goal, privatisation and the forms it takes and evaluating privatisation and the case for renationalisation. Each one has its own page with questions and model answers.

How is Competition Policy and Privatisation organised?

By the Eduqas A520QS specification, subtopic by subtopic, so it matches the order you are taught it in.