1 markWhy might a government intervene to control mergers in the business sector?
To promote fair competition and prevent monopolies
To encourage companies to merge and grow larger
To reduce corporate taxes for merged firms
To limit the freedom of businesses to make their own decisions
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1 markWhich of the following is a common intervention strategy to control monopolies and protect consumers?
Providing monopolies with tax incentives
Allowing monopolies to set any prices they choose
Regulating monopolies' prices and business practices
Encouraging mergers between multiple monopoly firms
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1 markWhat is contestability in markets related to?
The ease with which new firms can enter and exit a market
The level of government control over market operations
The total number of regulations imposed on industries
The number of consumers in a market
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1 markWhat is one of the key objectives of protecting suppliers and employees in markets?
To encourage unethical business practices
To limit the rights of workers and suppliers
To foster a more competitive and equitable business environment
To increase prices for consumers
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1 markHow can regulatory capture be prevented?
By appointing industry representatives to regulatory agencies
Through transparency, public oversight, and strict ethical guidelines for regulators
By reducing the number of regulatory agencies
By giving more power to the industries they regulate
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1 markWhat is regulatory capture in economics?
It is the process by which businesses take control of the regulatory agencies that oversee them
It refers to government agencies capturing businesses
It involves the competition between different regulatory agencies
It is a market strategy for companies to capture consumer interest
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1 markWhich of the following is an example of government intervention in a monopoly market?
Subsidising the monopolist
Enforcing anti-competitive practices
Allowing the monopolist to set prices freely
Encouraging the growth of more monopolies
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15 marksRead Extract
Discuss the likely problems for Sainsbury’s and Morrisons if the suggested merger between them goes ahead. Refer to Figure 1, Extract C and your own knowledge in your answer (15)
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15 marksDiscuss methods of government intervention to protect consumers within the utilities markets, such as energy and telecommunications.
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10 marksAssess whether complete nationalisation of the rail industry might protect employees (10 marks)
Extract A
The case for nationalisation
Privatisation has not made the rail industry cheaper to operate, despite the promise from one government source that it would see private companies bringing: “more competition, greater efficiency and a wider choice of services”. One reason, suggest the critics, is fragmentation. Instead of pushing British Rail into the private sector as a single supplier the government chose to break it into three components of track, train operators and rolling stock i.e. the trains and carriages. This has encouraged each part of the rail industry to prioritise its own profits rather than collaborating to improve the system.
Privatisation, meanwhile, never really worked. The rail network of 2 500 stations and 32 000 km of tracks was renationalised in 2001. This has encouraged the government’s transport secretary, a supporter of private sector involvement, to argue that the state Network Rail monopoly should be removed so that companies can bid to build new rail lines to upgrade the railway.
The privately-owned train operators are now the subject of fierce criticism, due to overcrowding and cancelled services. Private companies are supposed to compete to win a bid to be the train operator for a region for a short number of years. However in recent years the number of private companies bidding or renewing their contract as rail operators has fallen. In May 2018 the government rescued the East Coast line by renationalising it. The line had been run by the private rail operator Virgin Rail, which was suffering lower passenger numbers and revenue than forecast.
Some argue that there is a simple solution: reunite track and train in the only feasible manner, nationalisation.
(Source adapted from: https://www.ft.com/content/d82848ca-f7ba-11e7-88f7-5465a6ce1a00)
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8 marksRead Extract
Examine measures the government might use to restrict the monopsony power of supermarkets.
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5 marksWith reference to Extract C, explain one form of government intervention the Competition and Markets Authority may use to regulate monopoly power
Extract C
Proposed merger activity in the supermarket sector
Analysts at Société Générale, an investment bank, have recommended a merger between Sainsbury’s and Morrisons. They claim it would lead to increased economies of scale and market power for the combined business. Such a merger between the third and fourth largest supermarkets in Britain would have been unrealistic a few years ago due to concerns of its impact in reducing competition. However, the chances of getting permission from the Competition and Markets Authority have increased following the growth of Aldi and Lidl. Giant mergers have been approved in other sectors such as Lloyds-HBOS (banking) and British Telecom-EE (telecommunications). The suggested merger would have its challenges. There is considerable overlap between the locations of the stores and the enlarged company would require the rationalisation and co-ordination of hundreds of thousands of employees. A new expensive IT system is likely to be required and the underlying difficult market trends would remain in the food retailing industry.
(Source: adapted from ‘Tesco-bury and AS-Morrisons. Could Britain’s supermarkets be about to merge?’ Graham Ruddick, in The Telegraph, 16th December, 2015. http://www.telegraph. co.uk/finance/newsbysector/retailandconsumer/11699724/Tesco-burys-and-AS-Morrisons.-
Could-Britains-supermarkets-be-about-to-merge.html)
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