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 their customers. Competition can mean greater choice, and cheaper or higher quality products. But some competition abuse, such as abuse of dominance, is hard to understand because its victims are often invisible. - businesses abandoned, careers unfulfilled, innovations stifled at birth. Even in the health sector, reduced competition - as a result of hospital mergers - has been shown to damage patient care. This page accordingly offers a jargon-free introduction to UK Competition Policy, and provides links to other pages which provide more detail.
In principle, of course, 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 difficult to achieve such ideal competition in all cases (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
- or protect vulnerable customers (such as the elderly);
- and it is impossible for customers to have perfect information about complex goods and services.
On the other hand, large manufacturing companies, businesses which are protected or 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 target these ...
Seven Types of Potentially Anti-Competitive Behaviour
- Government protection, preference and subsidies
- (These behaviours are tackled in the European Union by developing and defending the single market for goods and services, and by prohibiting most state aids.)
- (Intellectual property legislation forbids the copying of new inventions for a number of years, but then competitors are then allowed to make their own copies)
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. The hope is that the potential cost of third party damages claims, as well as fines, can act as a deterrent.
And the government should also ensure that its own regulations and legislation - often introduced so as to protect customers - do not in fact freeze markets so that new business practices (such as those developed by low cost airlines) cannot come to the fore.
The wider benefits (and dis-benefits) of competition are summarised here.
Within the UK government, policy development in most of the above areas is the responsibility of 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.
- The CMA is also responsible for giving advice to the government where there appears to be evidence that the government's own policies and legislation is having a detrimental effect on competition and innovation.
A short introduction to UK competition policy (written especially for economics students) is here. You may also wish to consider these ...
Key Issues in Economic Regulation
- Is competition always a good thing?
- How do economists and lawyers define markets for the purposes of competition policy?
- When should politicians get involved in utility regulation?
- How can consumers - or their representatives - best get involvement in economic regulation?
- How appropriate is the structure of the UK Competition Regime?
- The effectiveness is the Regulatory Appeals Process?
- Non-Price Outcomes - To be set by Politicians? - or by Regulators - via Targets? - or via Rules?
- What lies behind the growing Use of private actions?
- What about behavioural economics?
- When can the Government intervene in mergers which might be against the public interest?
- What other interesting issues face practitioners in this area?