Briefly Outline the Main Features Of, and Rationale For, Uk Competition Policy. Is It Possible to Have an Effective Policy When There Are So Many Large Multi-National Corporations Operating Across the Global Economy?
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Summative Assignment March 07
Microeconomics for Business
Briefly outline the main features of, and rationale for, UK Competition Policy. Is it possible to have an effective policy when there are so many large multi-national corporations operating across the global economy?
UK Competition Policy can be broadly defined as “a means by which governments hope to improve the competitive environment in which firms operate, in order to enhance the overall performance of the economy.”(Lees and Lam, 2001) Competition law is enforced by the Office of Fair Trading. Their aim is to make the market place fair, by eliminating any unfair practices. Under the title of Competition Policy, a number of factors are taken into account. Competition Law is used to impose certain regulations on companies. A number of different Acts are used to implement the law. The Competition Act of 1998 covers such issues as the prevention of cartels, and the prevention of the abuse of a dominant market position. The Enterprise Act of 2002 allows mergers to be investigated. Other activities carried out by the Office of Fair Trading include educating businesses about any changes to the law that may affect them, and the promotion of a “strong competitive culture across a wide range of markets,” (Competition Enforcement webpage.) Many UK companies will also be affected by other international laws. Articles 81 and 82 of the European Community will be considered for some cases.
One of the main features of UK Competition Policy is that it tries to stop firms from abusing their dominant market position. Some firms become very successful and powerful within the industry that they are operating in. “European firms suspected of gaining monopoly power through creating barriers to entry, colluding over prices, or through merger activity, can be investigated under European Union law,” (Lees and Lam, 2001) A dominant market position usually occurs for one of two reasons; either the firm is performing well and a natural monopoly occurs, or, the firm is behaving in an un-just manner. UK Competition Policy exists to eliminate the abuse of the position, not the fact that they are in this position, i.e. it is concerned with the second of these reasons. This is different to in the USA, where firms are “prohibited from monopolising or attempting to monopolise a market, and the growth of a dominant position is restrained at an early stage,” (Lees and Lam, 2001.)
Another feature is the restriction of cartels and mergers. “A cartel is a collusive agreement among a number of firms designed to restrict output and achieve a higher profit for each member,” (M. Parkin, 2003.) In the UK cartels are illegal, as they are not considered to be acting in the publics interest. Therefore, firms suspected of operating cartels are closely monitored.
The Fair Trading Act of 1973 is used to investigate mergers. UK Policy means that mergers are investigated when the value of the assets involved surpasses a certain amount, or when it creates a monopoly position. The aim of any investigations related to this matter is usually to determine what is in the publics best interests. Public Interest regulations are often considered under Competition Policy.
Two more important features to consider are the Competition Act of 1998, and The Enterprise Act of 2002. “CA98, (Competition Act 1998) prohibits agreements, business practices and conduct that damage competition in the UK. In brief, CA98 prohibits anti-competitive agreements and abuse of a dominant market position.” (Ofwat Economic regulatory webpage.) The aim of the act is to provide a set of regulations that a companys practices can be judged by to see if they are in breach of the act.
“The Enterprise Act 2002 makes a number of important reforms, which are designed to crack down on abuses that harm consumers and fair-trading businesses alike and thus encourage productivity and enterprise. It gives the OFT a greater role in ensuring that markets work well to the benefit of all,” (Consumer regulations website, OFT) This Act is concerned with ensuring the overall smooth running of the market as a whole.
The rationale for UK Competition Policy comes from a variety of ideas and theories. One of the main concepts is the desire to keep the market place a fair place for everyone; both in terms of the firms operating within it, and the consumers. It seeks to protect the public interest, and at the same time make the market an efficient one. It aims to encourage firms to operate in a fair manner, producing profits, but not through anti-competitive methods. It also seeks to encourage competition in the market. Most companies naturally work in this manner anyway, but occasionally some firms become greedy, and having regulatory measures in place to stop them before they cause too much damage to the market can be helpful.
There is evidence to suggest that it is possible to have an effective policy, even though there are a lot of large multi-national corporations operating across the global economy. Some firms become greedy and exist purely to make as much profit as possible. It is fine for a company to have profit maximisation as its main goal, as long as their route towards achieving this goal is not unethical. It is when it becomes unfair on the competition that the Competition Commission would become involved to ensure that Competition Policy regulations are adhered to. An effective competition policy is essential for creating competitive industries across the world.
Globalisation is meaning that more and more multi-national companies are coming into the market place. To keep up with rapid changing technology etc, mergers are being formed. In some cases it is difficult to see whether this is a positive or negative issue. It could be seen to increase competition within an industry, although at the same time it could be seen as an anti-competitive practice, making it impossible for competitors to compete. The competitive policy can be applied effectively to distinguish between these two, and ensure that any unfair behaviour is eliminated
Microsoft are an example of a successful company, operating globally and with an effective policy. When new software is developed for example, they patent it to stop their ideas being copied. Although this could be seen as anti-competitive behaviour, it is legal and a good way of protecting themselves. It acts as an incentive for other companies to work on producing better products of their own to rival Microsoft. This encourages a healthy competitive environment.
On the other hand, there is also evidence to suggest that in this