• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Analyse the economic rationale for a competition policy, such as that in the UK, which is intended to limit potential abuses arising from the exercise of monopoly power or anti-competitive practices

Extracts from this document...


Analyse the economic rationale for a competition policy, such as that in the UK, which is intended to limit potential abuses arising from the exercise of monopoly power or anti-competitive practices, illustrating your analysis with reference to at least two examples of competition policy. The prevention of monopolies arising in the UK market is essentially for the purpose of the consumer. If monopolies were to form then prices would rise beyond recognition as there would only be one supplier of possibly essential goods leaving no option for the customer to pay the extortionate prices they are asked to pay. There are two types of monopoly, the pure monopoly and the natural monopoly. The difference between the two being that a pure monopoly is the only supplier in that field of output, with no close substitute and no threat of competition, whereas a natural monopoly is a company which once it is established can produce at an increased level of output at a lower cost therefore forcing its smaller competitors out of business. Another form of market domination is in the form of an oligopoly, which is the cooperation of several companies to achieve the same scale of market domination. Such as the collaboration between Lloyds and TSB. The reasoning behind the possibility of market domination is due to an almost inelastic demand for certain products, i.e. ...read more.


This meant that JJB continued to fix the price of kits at around �40 for adult and around �30 for junior sizes with barely any competition. The office of fair trading extended its investigation to all the major sports retail outlets across the U.K. with 2 out of the 10 investigated being fined. The fines incurred by all the parties concerned amounted to �18.6 million. The fines were allocated as follows:- -JJB sports were fined the largest amount of all concerned with a total of �8.373million -Umbro the main manufacturer involved were fined �6.64million -Manchester United plc were the most heavily fined of the clubs involved with fines totalling �1.652million -the remainder of the �18.6million fines was put onto the FA and the other clubs involved. The office of fair trade was aided in its quest to punish the involved, by an act put in place allowing them to punish any company thought to be practising unfair trade with a fine of unto 10% of the company's annual turnover. This act was known as the competition act. The Competition Act 1998 gives the Office of Fair Trading the power to investigate and intervene in circumstances where an organisation has practices which have the object or effect of preventing, restricting or distorting competition in the UK. ...read more.


This could easily cause a widening of the gap between the rich and the poor. The reasons why monopolies are bad for an economy are:- -resource misallocation -increased costs -redistribution of income from consumer to monopolist -restricted consumer choice -price discrimination Despite these reasons against allowing monopolisation to occur monopolies do bring some advantages to the market:- -economies of scale i.e. monopolies may benefit from price reductions not available to smaller companies. -high expenditure on research and development Overall though the cons still outweigh the pros of a monopoly economy. The regulators such as the oft are clearly an essential part of today's economic environment, if competitive trade is to continue. Without such organisations consumers would find themselves purchasing goods in an increasingly declining market. If monopolisation were to in the cigarette industry there would still be the same demand for tobacco as ever but supply would decrease and therefore price would rise shifting the whole demand curve. This is because cigarettes are an inelastic product where consumers will pay what ever is asked of them because it would be seen as an essential product by smokers. The chances of monopolisation in the modern market are particularly low due to the fair trade act and the ability to create competition in areas necessary. This means it is unlikely that we will have to pay high prices because of a lack of competition, but unfortunately we still have to pay tax! ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Markets & Managing the Economy section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Markets & Managing the Economy essays

  1. Marked by a teacher

    Supermarkets in UK - An oligopily

    5 star(s)

    Customers may consider it inconvenient or even risky to change if they are accustomed to using a certain product in a certain way, or they are used to the way certain services are delivered. Competitive rivalry Classical economics predicts that rivalry between companies should drive profits to zero.

  2. What are the implications for economic welfare of a market structure changing from perfect ...

    In perfect price discrimination, the price is decreased in order to sell a larger quantity. The monopoly sells only marginal unit at that price and subsequent units is sold for the highest price the consumers are willing to pay. In this way, the demand curve becomes the marginal revenue curve.

  1. "Discuss and evaluate the proposition that perfect competition is a more efficient market structure ...

    This is reaffirmed by the fact that producer would expand production until price and marginal costs are equal. As a result there are no profit opportunities. The use of society's resources to produce a good is minimized when each producer has the same marginal cost.

  2. Free essay

    Characteristics of poverty in the UK

    However for everyone else this will not make a difference for them well not for at least a few years or even decades so trying to tackle poverty by this method would be not very appropriate. Raising child benefits is quite a decent method because many of the kids that

  1. In economics we refer to these two acts as tax evasion and tax avoidance. ...

    This would lead people to invest their money in alternative forms of investment. As usual the perfect competitive scenario is far from being realistic. In the real world we are subject to oligopolies, imperfect competitors and, monopolists. In these cases it is not very clear that firms act in order to maximize profits.

  2. In this essay, I will analyze and compare the two extremes of market structure ...

    have sole control over the output of an entire industry: They are (1) the firm's exclusive ownership of a unique resource, (2) the existence of economies of scale, (3) the legal granting of a monopoly by the government. These three reasons are the legal source of a monopoly.

  1. Is the Government to Blame for Higher Petrol Prices?

    1990 and of course the major decline in taxation from 2000-2003 as the government backed down to fuel protestors and removed the fuel price accelerator tax and the small decline in crude Oil prices which occurred during this period. Over the period from 1988 to 2005 Petrol Prices increased 59.34% (37p to 91p)

  2. What Are The Effects Of Tescos Oligopolistic Market Structure, On Both Consumers And Producers?

    share price of 22.36 pence, making a 64% increase in share prices over the 9 year period. This data is also released from Tesco's own website, so it may appear that the data is slightly biased. However, this thought can be quickly dismissed as Tesco are unlikely to release false

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work