Preparing for competition in a network utility - final assignment - Essay Example

Download file to see previous pages... For assessing this abuse, the relevant market needs to be defined. In this essay, the test to define relevant market called SSNIP test is discussed with reference to two closed cases under OFT. This essay is organized as follows. Second section discusses the economic theory behind competition, section 3 discusses the Competition Act 1998, Section 4 discusses the cases ,section 5 discusses the analysis and findings and section 6 concludes the essay.
According to economic theory, competition and antitrust law are supposed to maximize allocative, productive and dynamic efficiency (Economides, 2004).However, in the case of network industries, due to their special features, economic regulation is established as an alternative to competition and antitrust law in many of these industries(Economides, 2004). The complimentarity of network industries to each other and the increasing returns to scale in consumption effects of these industries called network effects are tow distinguishing features of network industries. Due to the network effects of these industries, contrary to the law of demand for traditional industries, the willingness to pay for last unit will be higher here(Economides,1996; Brenan,2000).
The following are the main special features of the network industries that arise due to the network effects. The first is the possibility of making money from both sides of a network. Second is the existence of externalities in the market which means incomplete internalization of benefits by the market. Third is the high speed market penetration in network industries compared to the other industries. Fourth is the very high market share and profit inequality for markets with strong network effects. Fifth is the possibility of maximisation of social surplus by monopoly. Sixth is that it is not necessary for the existence of anti competitive acts to create ...Download file to see next pagesRead More