Public policies to ensure that monopolies do not come to dominate sectors of the economy or society – thus causing them to stagnate.
Economic progress depends upon competition
At the heart of a successful capitalist economy are competition and enterprise. Without competition established companies start acting monopolistically with little incentive to innovate or improve customer service.
Monopolistic behaviour doesn’t require there to be one dominant business – it can involve a number of businesses colluding to prevent new competitors arriving in the marketplace. The natural instinct of big business is to avoid competition. This instinct was diagnosed two centuries ago by Adam Smith in The Wealth of Nations:
"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary."
Britain’s Competition Commission
Within the UK the job of preventing businessmen’s conspiracies against the public falls to the Competition Commission - previously the Monopolies and Mergers Commission. Part of the CC’s role is to stop mergers and takeovers that might crowd out market rivals. The CC will also act against other anti-competitive behaviours such as predatory pricing. Predatory pricing involves a temporary price cutting strategy – usually by a cash-rich market player - designed to force competitors out of business. Once the competition has been bankrupted the predatory pricer jacks up its prices and makes monopoly profits.
A minority of economists say that dominant companies – sure of their future - are more likely to invest in research and development. The majority of analysts, however, continue to believe that upstart enterprises are more likely to be the source of – and spur – innovation. Big companies increasingly create competitive units within their organisation in order for them to stay ahead of external competition.
Competition policy and big business conservatism
Large and established businesses often use government policies to defend their market positions. The cost of complying with government regulations acts like a regressive tax with small businesses paying a much bigger share of their earnings in compliance than large businesses.
‘Big business conservatism’ involves undesirable collusion between business and politicians. In recent times it saw big supermarkets drive the abolition of rules against Sunday trading that protected community-based family shops.
Unfair competition in other sectors
Unfair competition isn’t just an economic phenomenon. It is occurring in the charitable and media sectors, too.
Voluntary organisations have complained that small charities are squashed when the state uses taxpayers’ money to establish bigger and better-funded quangoes to do similar work.
In broadcasting the BBC can act unfairly. Using its privileged position as the monopoly owner of licence fee money the BBC has invested in digital services that have crowded out private broadcasters.
The Office of Fair Trading (OFT) is the main organisation in the UK that deals with anti-competitive behaviour. (Competition issues which effect more than one member state are normally dealt with at the EU level)
In respect of the role of the Competition Commission (CC), the OFT refers to the CC for further investigation:
• mergers which the OFT thinks may lead to a substantial lessening of competition or
• markets where the OFT thinks there may be features of the market which prevent, distort or restrict competition.
Posted by: RobC | October 31, 2005 at 12:43 PM
AttHere is a link to a useful OFT document which sets out who they are and what they do.
Posted by: RobC | November 02, 2005 at 12:12 PM
http://www.oft.gov.uk/NR/rdonlyres/752CCFAF-0052-4FE1-84A4-5D528B75924C/0/oft357.pdf
Posted by: RobC | November 02, 2005 at 12:13 PM