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Government Intervention in the MarketA2 Economics
Starter
Define imperfect competition.
Give two examples of imperfect markets.
Describe the main features of these two markets.
Aims and ObjectivesAim: To understand industrial policy concerning
monopolies.
Objectives: Define industrial policy. Describe the roles of competition bodies in
the UK. Investigate the supermarket industry and
competition. Evaluate the supermarket industry and
competition.
Industrial Policy Governments generally
replace interventionist policies with free market policies.
Switch from Keynesian demand side policies, which led to inflation rather than FE.
To supply side policies.
Try to increase economic efficiency, productivity and competitiveness.
Demand and Supply Side Policies
In groups decide on:
Two Demand Side Policies
or..
Two Supply Side Policies
Competition Policy
Methods that the UK/EU authorities use in order to make markets more efficient.
Current Competition policy has four main strands:
1) Monopolies2) Mergers3) Restrictive Trade Practices4) Promotion of new competition
Competition Bodies Competition
Commission: investigate monopolies and proposed mergers.
Investigate monopolistic power in oligopolistic industries.
Office of Fair Trading: responsible for implementing policy.
Merging together.
Monopolies
Define Monopoly.
Statutory Monopoly: One firm 25% of market supply of
goods. (scale monopoly).
A number of firms have a 25% share and conduct their affairs to restrict competition. (complex monopoly).
Investigating Monopolies One indicator used is concentration ratios. Calculate the three firm concentration ratio.
Energy Provider Market Share %
Eon 27%
Powergen 23%
British Gas 20%
Southern Electric 12%
EM Power 4%
Scottish Power 3%
Investigating MonopoliesOther indicators include:
Evidence of price discrimination and price leadership.
Merger activity.
Ratios of advertising expenditure to sales.(Barrier to Entry).
Profit Margins
Ratio of capital employed to sales.(Barrier to Entry).
Evidence of collusive practice.
Investigating Supermarkets.
The OFT's investigation had lasted for over two years
Evidence 1: The price of own brand sliced white bread, 4 pints of milk, 6 value eggs across five supermarkets. (mysupermarket.com. Dec 2010).
Evidence 2: Recent Mergers and Acquisitions. List of Defunct Supermarkets, which have merged or been bought out by a supermarket in the last 30 years.
Evidence 3: Sales Figures 2010 of largest five supermarkets and advertising expenditure 2010. (Annual Reports & The Guardian Online).
Evidence 4: Net Profit Margins of UK’s Largest five supermarkets.
Evidence 5: Market Share of Supermarkets 2010.
Group Task
Now that you have analysed each piece of evidence from the
OFT, it is your job to present your findings to the Competition
Commission Directors. You should produce a summary of your
analysis, and provide a judgement on whether or not you feel
there is ‘Monopolistic Behaviour (both scale and complex
monopoly existing in the market) existing in the
supermarket industry’. You should justify your evaluation of
the analysis with facts and figures.
Competition Commission Reports Back
Supermarkets Report
http://www.youtube.com/watch?v=E2FME2Hnu88
OFT Investigation Article
Discussion
Findings
Actions