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Competition, Legislation And Regulation

Competition, Legislation And Regulation



Competition, Legislation And Regulation

Competition, Legislation And Regulation



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    Competition, Legislation And Regulation Competition, Legislation And Regulation Presentation Transcript

    • Competition, Legislation and Regulation
    • Market Structure
      • The degree of competition in an industry:
        • Concentration Ratio (CR) – The proportion of market share accounted for by a number of firms in the industry
        • A five firm CR of 60% means the top five firms in the industry account for 60% of total sales
    • Market Structure
      • Perfect Competition :
        • Large number of buyers and sellers
        • Homogenous (identical) products
        • Firms are price takers
        • Perfect knowledge
        • No barriers to entry and exit
    • Market Structure
      • Monopolistic or Imperfect Competition
        • Many buyers and sellers
        • Some degree of control over market
        • Differentiated products
        • Relatively few barriers to entry
        • N.B. Do not confuse ‘monopolistic’ with ‘monopoly’
    • Market Structure
      • Oligopoly – Competition between the few – industry dominated by relatively small number of large firms
        • Barriers to entry
        • Non-price competition
        • Price stability?
        • Homogenous or highly differentiated/branded
        • Potential for collusion
        • Potential for high profits
    • Market Structure
      • Duopoly – Industry dominated by two large firms
        • Market leader
        • Price leader
        • Barriers to entry
        • Non-price competition
        • Potential for abnormal profit
    • Market Structure
      • Monopoly – where firm is the industry or where one firm dominates the market
        • Monopoly power is said to exist if market share > 25%
        • Natural monopolies – water, gas, electricity
        • High barriers to entry
        • Abnormal profits
        • Can exercise control over price OR output
        • Monopoly power may be necessary for development of some products
    • Market Structure Highly Competitive High Degree of Market Power Perfect Competition Farming Stocks Currencies Monopolistic Competition Restaurants Small Builders Solicitors Oligopoly Supermarkets Banks Electrical Goods Monopoly Gas Water Electricity Tele- communications
    • Legal Framework for Business
      • Legislation - Laws made to protect consumers, workers, shareholders, environment from business activity
        • – necessity of observing the law for business – adds to cost, red tape bureaucracy, etc.
      • Covers almost every aspect of a business’s activities
    • Legal Framework
      • Consumer legislation:
        • Sale of Goods
        • Trade Descriptions
        • Consumer Protection
        • Food Safety
        • Supply of Goods and Services
        • Weights and Measures
    • Legal Framework
      • Employee Protection :
        • Health and Safety at work
        • Minimum Wage
        • Discrimination
        • Unfair Dismissal
        • Recruitment
        • Redundancy
        • Trade Union Legislation
        • Contracts and terms of work
        • Working Time Directive
        • Disabled Persons
    • Legal Framework
      • Other aspects affecting business :
        • Employers liability insurance
        • Display screens (VDUs)
        • Fire precautions
        • Data Protection
        • Accessibility legislation
        • Hazards and risks
        • Working environments – heating, lighting, ventilation, etc.
        • Patents
        • Licences
        • Planning Laws
    • Issues:
      • The extent of the regulation and the legal framework within which businesses operate all increases costs both direct and indirect (administration, monitoring, etc.)
      • Balance between protection and suffocating enterprise/initiative
    • Regulation
      • Monitoring business activity to act in the consumer’s interest:
        • Competition Commission – investigates mergers, takeovers, anti-competitive behaviour
        • Office of Fair Trading (OFT) – ensuring efficient operation of markets within the law
        • Regulation of former nationalised industries – OFTEL, OFWAT, OFRR, OFGEM, etc.
        • Advertising Standards Authority (ASA) – legal, decent, honest
    • Regulation
      • Forms of anti-competitive behaviour
        • Price fixing
        • Cartels
        • Collusion
        • Predatory or destroyer pricing
        • Distribution agreements
        • Insider dealing/trading
    • Self Regulation
      • Where business/industry monitors its own behaviour – often through an agreed code of practice. e.g.
        • PCC – Press Complaints Commission
        • Portman Group – alcoholic drinks industry
        • FSA – Financial Services Authority
        • BMA – British Medical Association