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Is Competition policy necessary?

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Introduction

Is Competition policy necessary? Competition policy is defined as being, government policy to influence the degree of competition in individual markets within the economy. It aims to promote efficiency and protect the interests of the consumer There are four main bodies set up in the UK with the task of monitoring firms, -The Office of Fair Trading, headed by the Director General of Fair Trading (DGFT) has strong new powers to impose penalties on companies that breach the Competition Act 1998. In addition it keeps watch on UK, EC and international monopolies, mergers, restrictive agreements and anti-competitive practices. The DGFT advises the Secretary of State seeks undertakings from firms where necessary and can act directly to deal with certain practices. -The Competition Commission has two main functions: it investigates and reports on matters referred to it by the Secretary of state or the DGFT (and in some cases the utility regulators); and the Appeal Tribunals of the Commission hear appeals against decisions of the DGFT under the Competition Act 1998. - The Secretary of State for Trade and Industry who has overall responsibility for competition policy in the UK, takes the final decision to stop or change anti-competitive behaviour (including mergers) in the UK under the Fair Trading Act 1973. The Competition Policy Directorate advises the Secretary of State. ...read more.

Middle

Three main aspects of market power are targeted, these are * How existing monopolies and oligopolies behave * The growth of market power through mergers * Oligopolistic collusion Various acts have been passed to help the regulatory bodies decide what aspects of monopolies and mergers should and should not be permitted. This also helps the bodies to keep consistency in their settlements. The 1948 act Monopolies and restrictive practices) decided that monopolies are to be investigated on an individual basis. It is not assumed that they are always acting either for or against public interest. The 1956 act (restricted trade practices) established that firms are obliged to register any restrictive practice agreements; these are assumed to be against the public interest unless those involves can justify them to the restrictive practices court. In 1964 an act was passed to prohibit minimum resale prices and in 1965 it was agreed that mergers could be investigated. The 1973 fair trading act created the office of Director General of Fair Trading. Monopolies can now be referred if they have 25% of the market (previously 33%). Nationalised industries can be investigated. Local not just national monopolies could now be investigated. In 1980, the competition act passed aims to deal with anti-competitive practices by firms, for example - Predatory pricing - Selling products at a loss to drive out competitor - Full line forcing - Making retailers buy the whole product ...read more.

Conclusion

Much of the legislation for monopolies is applicable for mergers as well as it is often inevitably a monopoly that will form from the combination of two or more firms. However, as well as these, the below regulations are applicable also. The monopolies and mergers commission is required to investigate and report whether or not a referred merger operates or might be expected to operate against public interest. In investigations the firms past conduct is looked at to establish evidence of abuse. Usually any benefit that comes from a merger will depend on the achievement of greater efficiency in some branch of the enlarged firms operations. Important sources of greater efficiency may be distinguished. While mergers may result in greater efficiency, thereby enhancing consumer welfare, they may also serve to increase market power. This is most clearly seen in horizontal and vertical mergers. Where the merging firms are already substantial sources of supply, this may reduce effective competition and permit the enlarged group more control over the market for its product and discretion over prices. The GKN - Birfield merger also involved the creation of a monopoly and re-established the position which had existed before 1959 when Birfield was the sole supplier of propeller shafts and constant velocity joints. The commission saw no danger in the merger because of the countervailing power of the group's main customers and their capacity for self-production if the need arose. ?? ?? ?? ?? Jack Adamson Page 3 Mr Pett ...read more.

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