Why are businesses regulated? - answer✔- to address market failure and externalities (external costs
and benefits)
- to protect the public interest
Outcomes of regulation - answer✔- address market failures
- increase or reduce social standing
- collective desires
- enhance opportunities
- deal with irreversibility
What is irreversibility? - answer✔current activities will result in outcomes from which future generations
may not recover at all
What is regulation? - answer✔a rule created by the government or another body which interprets a
statute, a form of secondary or delegated legislation
What is market imperfection? - answer✔where monopoly power is leading to inefficiency, government
will put controls on prices or profits
What are externalities? - answer✔dealing with the problem of external costs and benefits via some form
of regulation< e.g. controls on emissions of pollutants
What is asymmetric information? - answer✔Where consumers and producers have unequal access to
information about a good or service in the market.
What is equity? - answer✔the fair distribution of economic benefits
What does regulation do? - answer✔- implements a primary piece of legislation appropriately
- takes account of particular circumstances or factors emerging during a primary piece of legislation
What is the porter hypothesis? - answer✔the innovation effect, makes processes and products more
efficient, cost savings are achieved
What is regulatory compliance? - answer✔parts of a business that ensure people are aware of and
taking steps to comply with relevant laws and regulations
When does a dominant position arise? - answer✔where one business is able to behave independently of
competitive pressures
Who regulates competition? - answer✔The Competition and Markets Authority (CMA)
What is a cartel? - answer✔An agreement between businesses not to compete with each other
(collude on prices, discounts, production etc, a party to an anti-competitive agreement)
The closer a market gets to perfect competition: - answer✔the more efficient the allocation of resources
What is wrong with monopolies? - answer✔they are not in the public interest as they do not allocate
resources efficiently
How do the government seek to diminish monopolies? - answer✔by fragmenting an industry via
legislation, so that market share is not concentrated in the hands of one or two producers, also stringent
testing and government approval before products marketed
How is competition regulated in the UK? - answer✔The Competition Act 1998 prohibits agreements,
business practices and conduct that damage competition
What are the two chapter of the Competition Act 1998? - answer✔Chapter 1 - anti-competitive
agreements
Chapter 2 - abuse of dominant positions
What things are seen as prohibited agreements? - answer✔- Fixing prices
- Limiting or controlling production, markets, development or investment
- Sharing markets or supply sources
- Different trading conditions
- Supplementary obligations
What things are included in market abuse due to dominant position? - answer✔- Unfair pricing
- Limiting production, markets or development
- Different trading conditions
- Supplementary conditions on contracts
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