Economic Regulation

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. (But follow this link for a more detailed discussion of is competition really a good thing?)

However:

• it is in practice impossible to achieve such perfect competition (it is in particular not sensible to have hundreds of aeroplane manufacturers, or gas suppliers, or national newspapers);
• it is anyway 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.

But companies which are subsidised, or dominate an industry, or offer complex products, 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 address the following broad categories of potentially anti-competitive activity.

1. Government subsidies ("state aids")
2. Protecting inventions etc. ("intellectual property")
3. Price fixing ("cartels")
4. Abuse of dominant position
5. Mergers
6. Inefficient Markets ("market studies and investigations")
7. Utility monopolies and oligopolies

Within the UK government, all these policies are the ultimately the responsibility of the the Department for Business. Day-to day, however, all the policies are implemented by specialist agencies, as follows:

• The policing of (1) state aids clearly has to be done at a supra-national level. In the EU, therefore, it is done by the European Commission in Brussels. It is not further discussed in these web pages, other than in passing.
• UK intellectual property policy (2) is implemented by the Intellectual Property Office in Newport, Wales. It, too, is not further discussed in these web pages, other than in passing.
• 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 Office of Fair Trading (OFT) and/or the Competition Commission (CC). Policy number 7 - utility regulation - is implemented by a number of specialist regulators such as Ofgem, Ofcom, Ofwat, ORR and Postcomm. All these policies are discussed in more detail in the following web pages.
  • 3. Cartels
  • 4. Abuse of Dominant Position
  • Mergers
  • 6. Market Studies and Investigations
  • 7. Utility Regulation
  • Interesting Issues and Arguments