Competition and Markets Authority

An exploration of the UK body set up to replace the Competition Commission and the Office of Fair Trading.

Background

The Competition and Markets Authority (CMA) is a regulatory body in the United Kingdom established to foster a competitive business environment by controlling monopolies and encouraging competition. Being a core element in maintaining fair market practices, the CMA plays a pivotal role in monitoring and addressing anti-competitive behaviors.

Historical Context

The CMA was formed in 2014, succeeding the Competition Commission and the Office of Fair Trading. It inherited the core responsibilities of these earlier organizations—which had similar mandates regarding the oversight of monopolistic and anti-competitive activities within UK markets.

Definitions and Concepts

The Competition and Markets Authority (CMA) is empowered to:

  • Investigate market domination where a firm or group of firms holds 40% or more of a particular market.
  • Examine mergers that would result in a combined firm controlling more than 25% of a market.
  • Scrutinize restrictive practices and illegal collusions.
  • Initiate criminal proceedings and enforce consumer protection legislation.

Major Analytical Frameworks

Classical Economics

Classical economists emphasize the self-regulating nature of free markets. While they advocate for minimal government intervention, even classical frameworks recognize the necessity of mechanisms like the CMA to mitigate potential abuses of market power.

Neoclassical Economics

From a neoclassical perspective, agencies like the CMA are essential to correct market failures stemming from monopolistic behaviors. These economists would support regulatory policies that align incentives to drive competitive outcomes.

Keynesian Economics

Keynesian economics underscores the importance of government intervention to maintain economic stability. Organizations like the CMA are crucial for ensuring that monopolistic practices do not lead to inefficiencies and economic distortions that could hinder economic growth and welfare.

Marxian Economics

Marxian economists view such regulatory bodies with skepticism. They argue that the foundational structures of capitalism inherently lead to monopolies and oligopolies, which regulatory bodies like the CMA strive—but frequently struggle—to keep in check.

Institutional Economics

This school stresses the role of legal and regulatory institutions in shaping economic behavior. The CMA plays a key role by setting and enforcing rules that promote competition and protect consumers, making markets more efficient and equitable.

Behavioral Economics

Behavioral economists appreciate the CMA’s role in counteracting manipulative and deceptive practices that firms might engage in. By safeguarding against collusion and restrictive practices, the CMA helps to protect consumers who might otherwise make irrational decisions in the marketplace.

Post-Keynesian Economics

Post-Keynesians highlight the critical importance of interventionist policies. Organizations such as the CMA are seen as essential for correcting imbalances and injustices inherent in capitalist markets.

Austrian Economics

Austrians often criticize regulatory bodies, advocating for less intervention. However, within this context, they might find a middle ground where the CMA acts solely to preserve the basic competitive nature of markets without overstepping into excessive regulation.

Development Economics

Development economists might support the CMA’s mechanisms as necessary for fostering competitive industries, which is vital for economic development and industrialization, particularly in developing regions within the UK.

Monetarism

Monetarists focus more on monetary policy but agree on the importance of transparency and competitive practices in the market. The CMA, ensuring fair play, indirectly supports the broader monetary stability aimed at by monetarists.

Comparative Analysis

Examining other nations’ equivalents to the CMA, such as the Federal Trade Commission (FTC) in the United States or the European Commission’s Directorate-General for Competition in the EU, reveals both similar goals and a shared philosophy centered around enhancing market competition and consumer protection.

Case Studies

Example 1: Sainsbury’s and Asda Merger

The CMA blocked the proposed merger between two major retailers, Sainsbury’s and Asda, fearing it would reduce competition and harm consumers through higher prices and reduced choice.

Example 2: Investigation into Pharmaceuticals

The CMA has undertaken multiple investigations into the UK pharmaceutical sector, identifying anti-competitive agreements and penalizing accordingly to ensure fair pricing and availability of essential medicines.

Suggested Books for Further Studies

  1. “Regulating Competition in a European Market: The Case of Italy” by James Gotz
  2. “Market Structure and Market Behavior: The Structural Analysis of Markets and the Theory of Mergers, Volume 11” by Frederic M. Scherer
  3. “The Antitrust Revolution: Economics, Competition, and Policy” edited by John E. Kwoka Jr. and Lawrence J. White.
  • Antitrust Law: Legislation to prevent new monopolies from forming and to break up those that already exist.
  • Merger Control: The process of reviewing
Wednesday, July 31, 2024