IGCSE & Unit 3 - Competition Policy

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IGCSE & Unit 3 - Competition Policy

  1. 1. http://www.bized.co.ukCompetition, Legislation and Regulation Copyright 2006 – Biz/ed
  2. 2. http://www.bized.co.uk 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 Copyright 2006 – Biz/ed
  3. 3. http://www.bized.co.uk 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 Copyright 2006 – Biz/ed
  4. 4. http://www.bized.co.uk 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’ Copyright 2006 – Biz/ed
  5. 5. http://www.bized.co.uk 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 Copyright 2006 – Biz/ed
  6. 6. http://www.bized.co.uk Market Structure• Duopoly – Industry dominated by two large firms – Market leader – Price leader – Barriers to entry – Non-price competition – Potential for abnormal profit Copyright 2006 – Biz/ed
  7. 7. http://www.bized.co.uk 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 Copyright 2006 – Biz/ed
  8. 8. http://www.bized.co.uk Market StructureHighly Competitive High Degree of Market PowerPerfect Competition Monopolistic Competition Oligopoly MonopolyFarming Restaurants Supermarkets GasStocks Small Builders Banks WaterCurrencies Solicitors Electrical Goods Electricity Tele- communications Copyright 2006 – Biz/ed
  9. 9. http://www.bized.co.uk 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 Copyright 2006 – Biz/ed
  10. 10. http://www.bized.co.uk Legal Framework• Consumer legislation: – Sale of Goods – Trade Descriptions – Consumer Protection – Food Safety – Supply of Goods and Services – Weights and Measures Copyright 2006 – Biz/ed
  11. 11. http://www.bized.co.uk 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 Copyright 2006 – Biz/ed
  12. 12. http://www.bized.co.uk 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 Copyright 2006 – Biz/ed
  13. 13. http://www.bized.co.uk 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 Copyright 2006 – Biz/ed
  14. 14. http://www.bized.co.uk 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 Copyright 2006 – Biz/ed
  15. 15. http://www.bized.co.uk Regulation• Forms of anti-competitive behaviour – Price fixing – Cartels – Collusion – Predatory or destroyer pricing – Distribution agreements – Insider dealing/trading Copyright 2006 – Biz/ed
  16. 16. http://www.bized.co.uk 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 Copyright 2006 – Biz/ed

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