UK Economic Regulation and
Other things being equal, it is a good thing if firms compete hard with each other. It encourages them to be efficient and innovative, and to meet the needs of consumers. In principle, therefore, it is a good thing if there are hundreds of firms all competing to sell similar goods and services, and if their customers have reliable and comprehensive information about all the goods and services that are on offer. However:
- it is in practice impossible to achieve such perfect competition (it is for instance not sensible to have hundreds of aeroplane or computer manufacturers, or national newspapers);
- There are some natural or near-natural monopolies (it is for instance not sensible to run more than one electricity cable, or gas/water pipe, to each house);
- it is sometimes sensible for governments to protect the interests of inventors (through patent protection) ...
- ... or protect firms in key industries or disadvantaged regions;
- and it is impossible for customers to have perfect information about complex goods and services.
On the other hand, large manufacturing companies, companies which are subsidised, or companies which dominate an industry can too easily become complacent and inefficient; and they may go even further and exploit their positions in order to charge higher prices and make excessive profits. Governments in all modern economies have accordingly developed a range of policies which seek to balance one need (to grow large and efficient companies) against the other need (to protect customers against exploitation). These policies may be divided into those which target the following broad categories of potentially anti-competitive activity. (Categories 1 and 2 are outside the scope of this website. Follow the links for more detailed information about the other policies.)
Weapons and Targets
- Government protection, preference and subsidies (In Europe, this takes the form of developing the single market for goods and services, and reducing state aids.)
- Protecting inventions etc. (intellectual property)
- Price fixing ("cartels")
- Abuse of dominant position
- Merger Control
- Inefficient Markets ("Market Studies and Investigations")
- Utility monopolies and oligopolies
In addition, the UK government is increasingly keen to see customers claim compensation (by taking private actions) when a cartel or dominant company causes them damage.
A note, below, list the agencies responsible for delivering each of the above policies.
As well as following the above links, you may wish to consider these ...
... Key Issues in Economic Regulation
- Is competition is always a good thing?
- Government Involvement in Economic Regulation
- Consumer Involvement in Economic Regulation
- The Effectiveness of the Regulatory Appeals Process
- The Stucture of the UK Competition Regime.
- Non-Price Outcomes - To be set by Politicians? - or by Regulators - via Targets? - or via Rules?
- The Growing Use of Private Actions
- What about Behavioural Economics?
- Other interesting issues facing practitioners in this area.
Within the UK government, policy development in most of the above areas is the responsibility of the the Department for Business. Day-to day, however, all the policies (except private actions) are delivered through specialist agencies, as follows:
- The policing of (1) the single market and state aids clearly has to be done at a supra-national level. In the EU, therefore, it is done by DG Competition within the European Commission in Brussels. It is not further discussed in these web pages.
- UK intellectual property policy (2) is implemented by the Intellectual Property Office in Newport, Wales, part of the Department for Business. It, too, is not further discussed in these web pages.
- Policies (3) to (7) are collectively known as 'economic regulation', within which (3) to (6) are generally referred to as 'competition policy', implemented by the Competition and Markets Authority (CMA).
- Policy (7) - utility regulation - is implemented by a number of specialist regulators such as Ofgem, Ofcom, Ofwat and ORR.
- Private actions are heard by the Competition Appeal Tribunal.