Competition is where businesses in the same market offer the same products and services to a customer who has a demand. Competition makes firms offer their services and products at a lower price which will help the customer that is buying the service.
UK Competition policy was introduced so that firms can compete with each other enabling consumers to get the best goods and services from the competing market. It was also introduced to enable markets to work better and achieve a good level of economic efficiency and welfare.
The UK Competition policy provides an environment for competition to occur. It enables this in four ways; more efficiency for the economy, Lower prices for consumers, more innovation and promoting faster economic growth.
The Perfect competition structure describes several firms or sellers in an area or industry competing with each other. However monopoly describes a single seller in a market with a dominant position.
In a perfect competition market, it is easier for new firms to enter the market as there are fewer barriers to entry, for example due to the competing nature of the market, new firms are able to compete on price and service. In a monopolistic market, new firms have less opportunity to enter as the monopolies usually have higher prices, lower levels of quality of goods and set suppliers, making it difficult for firms to enter. It can be said the monopolistic markets affect the consumer is a negative way due to these reasons.
The profit in short and long run, Perfection competition, in the short run, they are able to earn abnormal profits, but the long run its not possible, when existing firms earn profit, new firms and competitors will come into the market and reduce there profits. For monopoly, its achievable to earn abnormal profits in short and long run, as there are barrier to entry to prevent firms to enter the market. The monopoly supplier will produce lower output and higher price under monopoly than a competitive industry.
Monopoly outcome is less efficient from society’s point of view due to the loss of consumer and producer surplus. However it can be altered as it allows the cost curves under monopoly to be lower because the monopolist may be able to take advantage of economies of scale. Monopoly produces less than perfect competition and therefore creates unemployment of resources. Also a monopoly makes supernormal profit, which leads to an unequal distribution of income. If charged higher price for producing less, monopoly creates an artificial scarcity, the inefficiency of this is called deadweight loss.
The following discusses the reasons the competition commission investigated BAA and Tesco PLC and provides an insight as to why they could affect their relative markets if allowed to continue onwards as they are at present.
Competition is restricted between Heathrow and non BAA airports due to Heathrow being the only
significant hub airport in the south east and also in the UK due to the wide range of facilities that it has for example it has runways which two of them are full runways, it has broad range of network of international and domestic routes and wide terminals. This is not present in other south east airports so therefore the competition is very limited even for airports for airlines which offer connecting flights.
This means that Heathrow is dominating the market and having the market power and controlling all airports and these are the features that restrict airport competition. Market liberalisation is a way of making markets easier for new companies to enter, and this is what the competition commissionis trying to do, and to have other airports competing with them.
Edinburgh and Glasgow are both owned by BAA and that common ownership is affecting competition between these two airports. Evidence was found out that Glasgow compared to Edinburgh was better. But when you compare Glasgow and Edinburgh and Prestwick, they found out Glasgow and Edinburgh were better than Prestwick therefore common ownership could be affecting competition. However if both airports have separate ownership, there is also a possibility of there being more competition through price, investment and innovation.
Planning systems such as creating large new runways and terminals is a way that will restrict and distort competition by acting as a barrier to entry of new airports and expansion of existing airports. This means that it makes it difficult for new competitors to break into a market; it reduces the risk of new competition for the companies that are already in the market. Companies may lower their prices to an extent which would harm competitors to operate at a loss. The airport will also have a cost advantage, by making their prices lower, allowing existing monopoly’s to cut prices and win on price.
BAA is not sufficiently regulated due to the nature of the airport legal framework, which means that there are no statutory duties on BAA or no economic licence. Having no licences means that BAA is able to act more liberally in the market place. This means that its expenditure, service and business at a whole is not regulated, in turn potentially affecting their customers if the business is acting out of turn.
On the 21st December 09 the BAA won its appeal to not set three of its UK airports, this is not the result that the competition commission would want but it shows the strength of the argument that competition can have in a market place.
The competition commission have found that in the UK groceries industry, retailers have powerful and strong positions in many of local markets.
The Commission found that large retailers such as Tesco PLC could act as a barrier to entry for new firms or existing ones who want to expand by creating costs and risks on smaller retailers and organisations without prior grocery retail experience in the UK. The current grocery markets are highly concentrated and exist in local areas, usually with a defined customer base. Large retailers with price reductions and combined products (i.e. household shopping and groceries) will outplay those smaller niche grocery retailers which will result in the consumer over time having a few large key players rather than many competing local firms.
The commission policy argues that consumers are affected by local markets being highly concentrated, usually depicting less competition. As there is less competition in highly concentrated markets the Tesco store can potentially earn higher profit margins. This would therefore be detrimental to the consumer.
The essay aimed to depict what competition is and how it affects the consumer when it is restricted or distorted and to see whether perfection competition is better than monopoly. In conclusion I feel that monopolies in markets make competition inefficient typically distorting the market and affecting the consumer in a detrimental way. It also affects the overall business chain in markets through distorting innovation and further enhancements as these monopolies are able to remain in powerful position due to the lack of competition. Having competition in a market enables new companies to enter the market as barriers to entry are removed and it also allows consumers to gain better products and services. BAA have common ownership over airports resulting in better facilities for their airports compared to non BAA one’s, affecting the consumer. Having BAA sell off some of their airports will inject competition back in to the market ultimately raising the service to consumers. Tesco PLC was also investigated because it would potentially increase barriers to entry for new firms and massively distort competing local grocery suppliers. I feel that in both cases the commission was correct in investigating BAA and Tesco as it would ensure competition would thrive in their respective markets.
Business Law (Second Edition) By Ewan MacIntyre (Author). Publisher: Pearson Education Limited
Published in 2005
Information Accessed-Page 189-190 (The enterprise act 2002 and The competition act 1998)
Economics (Sixth Edition) By John Sloman (Author)
Publisher: Pearson Education Limited Published in 2006
Information Accessed-Page 352 (UK Competition policy)
Department for Business Innovation
Rise in Oil Prices and its effect on the India Economy
Introduction India is a developing country but it is a rapidly growing economy. Its economy is the 11th largest in the world and the 4th largest by purchasing power parity. Even though India is still suffering from poverty, illiteracy and corruption its prospects are fair as it has made significant progress after free market principles were initiated in 1991. It has had achievements in globalization and the countries per capita GDP was listed as 127th by the International Monetary Fund (IMF) in 2010 with $3290.
By 2008, India established itself as the 2nd fastest growing economy with economists talking about it becoming one of the world’s super powers of the future. India is one of the BRIC countries (Brazil, Russia being the rest of the quartet) because of its economic growth and prospect of improving global economic conditions. From the years 1947 to 1991, the policy that governed India’s economy was socio-democratic; the country was severely regulated, had pervasive corruption, declining growth and more public than private ownership. However, since 1991 the country has experienced liberalization and more of a market-based economy. India had stepped up to the 21st century with improved reforms and enhanced economic policy.
Unfortunately, India, like other countries around the world, was not immune to the financial crisis of 2007 to 2010. The economy was crippled with the effect of the economic downturn in addition to a poor season of monsoon that India’s climate faces annually. India’s GDP fell drastically to 6.7% in the period 2008-2009 but experienced a small climb of relief to 7.2% in 2009-2010. The fiscal defecit also rose from 5.9 to a soaring 6.5% at the same time. The country’s account defecit was elevated to 4.1% of its GDP during the 2nd quarter. According to the Labour bureau its unemployment level was significant at 9.4% and more than 10% in rural areas where more than a billion Indians reside.
Economic History Brief
The economic liberalization of India is ongoing as there are current reforms. Independence from the British was achieved in 1947 and India stuck to socialist policy, then during the 80s the Prime Minister Ragiv Gandi started some reforms which were break through ones that allowed international trade and investment, deregulation, privatization, tax movements and controlling of inflation that was needed. Political ruling has not affected the direction of liberalization; no mater what the ruling party the main objective of the government is to improve labor laws and reduce agricultural subsidizing. The objective is to improve economic growth and move to a capitalistic, industrialized nation. This is thought to be for the good of the citizens.
One of the hardships that India faces is poverty but 2009 it was estimated that more than 300 million people have escaped poverty. Liberalization has proved to be beneficial to the economy and in 2007 the proof was when India recorded its highest ever GDP growth rate of 9%. After China, India is the fastest growing economy in the world. The Organisation for Economic Co-operation and Development (OECD) report said that average growth rate will double the average income in ten years and more reforms would accelerate it. The government strategies have included more liberalization movements. India grows at a slower pace than China which has had more experience with reforms since 1978. One author, McKinsey states that it is imperative to remove main obstacles to change which would free up the economy to grow just as fast as China’s at 10% a year or more. India was also ranked 124th amongst 179 countries in the Index of Economic Freedom World Rankings which is an improvement over the prior years.
However the government has not left everything to chance. It has been monitoring the effect of the global economic slowdown repeatedly and taken note of the employment situation in India since 2008. There were six quarterly surverys in the chosen sectors such as the textile industry, metals, stones and jewelry. Automobiles, transport, leather and handicrafts were also surveyed. The problems were that employment decreased by 0.4 million during the quarter October-December 2008, it increased by 0.3 million during January-March, 2009, declined by 1.13 million during April-June 2009, increased by 0.49 million during July-September 2009, increased by 0.438 million in quarter October-December 2009 and increased by 0.016 million during January-March 2010. This shows that approximated employment in the sectors had experienced a net addition of 8.15 million during the period of October 2008 to March 2010.
A statement of sector wise changes in employment is here:
Industry / Group
Changes in employment during the quarter (in Lakhs)
Oct – Dec,
Jan – Mar,
April – Jun,
July – Sep,
Oct – Dec,
Jan – Mar,
Textiles including apparels