Market Imperfections and Failures Contents Contents 2 Introduction 3 Competition Policy in United Kingdom 3 Objectives 4 Objectives Relating to Microeconomic Theories 5 Externalities in Competitive Markets 5 Asymmetric Information in Competitive Markets 7 Monopoly 8 Oligopoly, Strategic Thinking and Game Theory 13 Conclusion 16 Reference List 17 Introduction In the modern world, economic growth in a nation can be obtained with the benefits of international trade and competition…
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Imperfect competition in the market generates asymmetric information and dampens the level of welfare in the society. Discriminations made by the monopolists in the market not only hamper the social utility, but also engages in misallocation of resources. Efficient allocation of productive resources helps to the economy to reach a Pareto optimal stage. However, in the real world, corruption and strategic business initiatives of certain firms in the industry have reduced the level of competition in the economies of most of the nations (BIS, 2013). Public authorities of the countries are now taking active initiatives to augment the level of market competition in the economies (CIA, 2013). The Competition Law or Policy adopted by a country helps to promote the level of market competition by imposing special rules and regulations on the anti-competitive practices conducted by the contemporary corporate firms. This paper would focus on the Competition Policy of U.K and would show how the objectives of the policies are related to the microeconomic theories of market. The learnt from this paper would help to analyze the negative impacts on an economy due to the lack of proper market competition (Hubbard, 2008). ...
to protect the interests of the consumers in the country (Mankiw and Mark, 2006). The two main factors that were checked by this law were: Abuse of Market Power Collusive Behaviour The first competitive policy instruments in U.K were introduced about fifty years ago. The Department of Trade and Industry, The Director General of Fair Trade and the Competition Commission of the country had introduced their first competitive policy instruments (Woodford, 2001). Over time, subject to the external changes in the market, the terms and conditions of the policy have largely changed in U.K. Finally, in 1988, the Competition Act was again modified and adopted as the approach of ‘prohibition’ to prevent dominance in the marketplaces of U.K (Manne, 2012). Objectives The primary objectives of the Competition Policy in U.K were: 1. The Policy was the basis for the concepts of the Fair Trade Act 1973. Thus, one of its objectives was to serve the interests of the public (Assael, 2005). 2. The Policy aimed at providing guidance and constraints to the discretionary power of the ‘decision makers’ in the market. 3. It aimed to promote and maintain the market competition. 4. To assure that consumers received quality products at a good price. 5. To augment innovation and productive efficiency in the market. 6. Assure balanced distribution of employment and industry in U.K. 7. To enhance the competitive powers of the domestic companies of U.K. in order to easily compete with the foreign companies (OECD, 2002). Objectives Relating to Microeconomic Theories This context of the paper would highlight that the goals or the objects of the Competition Policy introduced by U.K. are based on the theories of microeconomics, which
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