![]() ![]() Rate of return regulation looks at the size of the firm and evaluates what would make a reasonable level of profit from the capital base. This is a different way of regulating monopolies to the RPI-X price capping. This tends to be seen as an extreme step, and there is no guarantee the new firms won’t collude.ĥ. For example, the US looked into breaking up Microsoft, but in the end, the action was dropped. In certain cases, the government may decide a monopoly needs to be broken up because the firm has become too powerful. For example, CMA blocked the merger between Sainsbury’s and Asda as being against the public interest.The CMA can decide to allow or block the merger depending on whether it believes it is in the public interest. If a new merger creates a firm with more than 25% of market share, it is automatically referred to the Competition and Markets Authority (CMA). The government has a policy to investigate mergers which could create monopoly power. not allow a monopoly to cut off gas supplies in winter. In gas and electricity markets, regulators will make sure that old people are treated with concern, e.g. For example, the rail regulator examines the safety record of rail firms to ensure that they don’t cut corners. Regulators can examine the quality of the service provided by the monopoly. If a firm becomes very efficient, it may be penalised by having higher levels of X, so it can’t keep its efficiency saving.However, firms may argue regulators are too strict and don’t allow them to make enough profit for investment.There is a danger of regulatory capture, where regulators become too soft on the firm and allow them to increase prices and make supernormal profits.It is costly and difficult to decide what the level of X should be. ![]() In the absence of competition, RPI-X is a way to increase competition and prevent the abuse of monopoly power. Arguably there is an incentive to cut costs.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |