Government ensures competition so that firms
act in the public interest.
If there are lots of firms in a market then they will
tend to compete on price. Customers will get
more choice at lower prices.
Government intervention was also thought
necessary with the privatised utilities until there
was sufficient competition in the industry.
The Office of Fair Trading
The OFT is a government
body responsible for ensuring
that businesses act in line with
The Competition Commission
The Competition Commission is divided into two parts,
one dealing with the traditional reporting duties and the
other with appeals in the form of Appeals Tribunals.
The reporting function is concerned with monopolies,
mergers, and regulatory inquiries. Although it does not
have the power to initiate its own inquiries, it will act on
cases referred to it by the DFTG (Director General of
Fair Trading) or the Secretary of State for Trade and
The Appeals Tribunal hear appeals against decisions
and penalties levied by the DFTG.
Privatisation of British Telecom, British Gas, the water,
sewage and electricity industries and the railways led to
the establishment of dedicated regulatory offices headed
by their own director generals.
These regulatory bodies (OFTEL, OFWAT, OFGEM and
ORR) have the same investigative and punishment
powers as the DGFT.
The director general can also limit price rises if they
believe that there are efficiency savings to be made.
Merger occurs when a firm joins with another
Monopoly is a form of market structure in
which there is only one seller of a good or
service. A firm is usually described as a
monopoly if it has at least 25% of the market
share and therefore has a dominant position.
Restrictive Practices are techniques used by
larger firms to prevent other firms from joining
the market. It includes price-fixing, market
sharing, monopolising or attempting to
1973 Fair Trading Act states that any
merger involving more than 25% market
share is eligible for referral to the
Competition Commission (CC).
At least one of the firms must operate in
Dealing with it…
OFT makes provisional assessment of likely
mergers for investigation.
OFT advises the Secretary of State for Trade
and Industry (SS) who decides whether the
proposed merger should be referred to the CC.
CC conducts investigation to decide whether
merger is in the public interest.
The can be allowed, prohibited or given specific
Their conclusions are sent to SS who makes
1998 Competition Act states that OFT can
investigate any firm thought to be abusing
market power at either a local or national
Fines of up to 10% of annual turnover can
be levied for each year of the
Dealing with it…
OFT must decide whether a firm has a
‘dominant’ market position (not only a
matter of market share but also
OFT has to determine that the firm is
engaging in anti-competitive practices
(e.g. unfair pricing) on the basis of its
dominance before a fine can be imposed.
The EU Commission will consider
investigating any merger involving world
sales of more than €5bn.
Commission has the power to ban
activities and impose fines to a maximum
of 10% of worldwide turnover.
1998 Competition Act made price fixing and
other restrictive practices illegal as the threaten
to “appreciably” reduce the level of competition
in an industry.
Can be fined up to 10% of annual turnover for
every year in which they were involved in the
Restrictive practices include: Price fixing,
agreeing to reduce output to drive up market
prices, making agreements to share markets,
the imposition of minimum resale prices.