What Is the Focus of International Business - Essay Example

INTERNATIONAL BUSINESS IN FOCUS Introduction This paper will critically discuss the role that competition authorities may play in correcting market failures and facilitate competition in the United Kingdom. In order to answer this question, the paper will first focus on the examples of market failures and the key competitive authorities in the United Kingdom. Market failures Market failure is a notion within economic theory whereby there is inefficient allocation of goods and services by the free market (Krugman and Wells, 2006). This means that there subsists another imaginable result where participants in the market can be made more affluent without making others worse-off. Individuals perceive market failures as situations where the search of self interest results to outcomes which are not efficient, but they can be enhanced from the societal point of view (Ledyard, 2008). Generally, market failures are linked with non-competitive markets, information asymmetries, externalities, principal-agent problems, and public goods (Krugman and Wells, 2006). Typically, the subsistence of a market failure is frequently employed as an explanation for government intervention in a specific market. Most economists, particularly microeconomists are frequently concerned with the roots of market failures and the measures that can be put in place to correct them in case they occur. Such scrutiny plays a significant responsibility in various kinds of public policy studies and decisions. Nevertheless, some kinds of government policy interventions, including subsidies, taxes, wage and price controls, bailouts, and regulations encompassing efforts to correct market failures may result to government failure (ineffective allocation of resources) (Weimer and Vining, 2004). Therefore, there is at times an alternative between imperfect results that is imperfect market outcomes with or without government interventions (Weimer and Vining, 2004). However, whichever the case, if there is existence of market failure, the result is not Pareto efficient. Majority Keynesian and neoclassical economists suppose that it might be likely for governments to enhance the inefficient market results, whilst various heterodox schools of thought do not agree with this supposition. Competition authorities in the United Kingdom Competition authorities are national bodies with the role of putting in to effect competition law in order to guarantee competition (CUTS, 2003). Competition is deemed to benefit businesses, consumers and the general economy and furthermore, competition assist in improving quality and choice, keeping prices down, encouraging innovation and enhancing economic growth. Competition authorities is responsible for regulating aspects of acquisitions and mergers, taking action against anticompetitive behaviours, regulating monopolies and cartels, and informing public authorities, the government, and businesses regarding competition matters (Cseres, 2005). Streamlining these procedures around consolidated data at each level and partnership with other organizations delivers the infrastructure and support necessitated for public service deliverance (Organization for Economic Co-operation and Development, 1999; Dube, 2008). The competition authorities have regulatory authorization over matters linked to competition covering all the sectors in the economy. Through this, the competition bodies ensure that the economic and social welfare of the consumers is protected. In the United Kingdom, there are various competition authority bodies which have the responsibility of scrutinizing and putting into effect decisions on competition concerns in the market. Some of these bodies encompass: The Office of Fair Trading (OFT): This is the main competition authority in the United Kingdom which has the role of putting into effect competition and making markets work appropriately for the benefits of the clients. The Office of Fair Trading obtains much of its powers from the Competition Act 1998 and Enterprise Act 2002. Some of the roles of OFT are to investigate mergers, anti competitive performances in the market and enforcing consumer law (Department for Business Innovation and Skills, 2011; Organization for Economic Co-operation and Development, 2002). The Competition Commission (CC): The authority is charged with the role of conducting in-depth investigation into markets, mergers and regulation of specific industries including communications and utilities. Nevertheless, the Competition Commission simply carries out its investigations when they have been authorized by the Office of Fair Trading or in circumstances, the Secretary of State (Department for Business Innovation and Skills, 2011). The Competition Appeal Tribunal (CAT): This is a specialist judicial body whose responsibility is to hear and rule on appeals of decisions made by the various competition authorities (Department for Business Innovation and Skills, 2011). The Competition Appeal Tribunal has a cross-disciplinary expertise in economics, law, competition, business, and economic regulatory matters (Department for Business Innovation and Skills, 2011). The European Commission: This body has special powers to work on specific large mergers with a European dimension (Department for Business Innovation and Skills, 2011). In addition, it has powers of scrutinizing anti-competitive acts in case trade between the European Community members is affected. The role of competition authorities in correcting market failures and facilitate competition These competition authorities play a major role in the United Kingdom market with an aim of correcting market failures and facilitate competition (Organization for Economic Co-operation and Development, 2002). Promoting competition within the United Kingdom will enhance productivity performance and in addition, make markets work appropriately for consumers in order to attain prosperity for all individuals (Organization for Economic Co-operation and Development, 2002). Competition authorities in the United Kingdom, European Union and other national governments are guided by the competition policy in their attempts to make markets work appropriately and attain a higher degree of economic welfare and economic efficiency (Cseres, 2005; Rodger, and MacCulloch, 2008). The key aims of competition policy are to make markets work appropriately, promote competition and contribute towards high effectiveness and competitiveness of the United Kingdom economy within the European Union single market (Riley and College, 2006). Competition policy aims at ensuring the following: Investigating allegations of anticompetitive practices in the market which may have negative impacts on consumer welfare; Ensuring efficient price competition amongst suppliers; Guaranteeing a wider customer preference in the markets for services and goods. (Riley and College, 2006; Rodger and MacCulloch, 2008) In the United Kingdom, there are four pillars of the competition policy which include: Cartels and Antitrust: this encompasses the role of elimination of agreements that seek to prohibit competition in the market, for instance cartels or price fixing agreements. Furthermore, the competition authorities have the role of eliminating abuses from organizations which hold leading positions in the market. Merger control: this encompasses the competition authorities’ responsibilities to investigate takeovers and mergers between firms, for instance, an amalgamation between two big firms which may lead to their dominating the market. Market liberalization: this entails the introduction of fresh competition in formerly monopolistic firms, for example telecommunications, energy supply, postal services and air transport. This is anticipated to correct such market failures and boost competition in the market. State aid control: examples of national aid measures are analyzed by the competition policy to make certain that such measures do not falsely distort competition in the market. (Riley and College, 2006) The Office of Fair trading has the role of putting into effect consumer law in order to protect consumers. The United Kingdom competition law enforced by the Office of Fair Trading bars any efforts of fixing prices. For instance, in the United Kingdom firms cannot: Limit production or share markets to raise prices; Reduce prices below costs with an aim of driving weaker or smaller competitor from the market; Agree on prices to charge consumers or to pay for supplies with other competitors; Enforce minimum prices on diverse distributors. (Riley and College, 2006; Amato, 2001) Anti-competitive practices are deemed to be one of the major market failures in many countries. The major competitive authorities in the United Kingdom major responsibility is to investigate anti competitive performances in the market in order to ensure competition and make markets work appropriately for the benefits of the clients (Riley and College, 2006). Some of the examples of anticompetitive practices encompass predatory pricing, vertical restraint, creation of artificial entry barriers and collusive practices. These practices are prohibited by the competition authorities, however, prohibition is limited if these practices are believed to contribute to the improvement of distribution of goods, enhance productivity, improve economic efficiency, or promote technical progress in the market. In the United Kingdom, cartels are a damaging type of anti-competitive behavior. The Office of Fair Trading has a major priority and function of taking action against such cartels. Under Article 81 of the European Commission Treaty and the Competition Act 1998, cartels are prohibited (Riley and College, 2006). Organizations and firms found to be cartel members are fined up to ten percent of their global turnover. Furthermore, under the Enterprise Act 2002, dishonestly involving in most serious kinds of cartels is a criminal offence and individuals who are convicted of such an offence are charged unlimited fine or may receive utmost five years imprisonment. In this case, the competition authority has the role of imposing sanctions on restrictive behaviours (Organization for Economic Co-operation and Development, 1999). Studies have revealed that in the United Kingdom, there have been various instances of inquiries in price fixing and allegations amongst other types of collusive practices. These offer interesting proof of how the competition authorities in the United Kingdom are employing their improved powers under novel competition laws to inquire on probable circumstances of anticompetitive behaviours and price fixing. In case firms engage in anti-competitive practices such as price fixing, the competitive authorities generally intervenes via the enforcement of competition law (Amato, 2001). In 2006, the United Kingdom Office of Fair trading took part in investigations of allegations of illegal price discrimination by the international electronics giant Sony (Riley and College, 2006). During this time, majority of online retailers complained of how Sony discriminated against them as it provided discounted and cheaper prices to high street and established retailers which made the online retailers to pay more for their purchases (Riley and College, 2006). This complaint originated from the Interactive Media in Retail Group (IMRG) and they claimed that dual pricing acted as an anti-competitive strategy that was damaging especially to the welfare of the consumers. Currently, dual pricing is a mechanism introduced by the electrical consumer manufacturers wherein dealers buying goods online buy at a higher price. Dual pricing results to some retailers selling their products at a higher cost whereas others sell at a low cost; this limits competition in the market and as a result affects consumer welfare and economic efficiency of nations. According to the Interactive Media in Retail Group, there is no economic validation for dual pricing and this being an example of a market failure should be corrected in order to ensure consumer welfare through increased competition in the market (Riley and College, 2006). Furthermore, in 2006, the Office of Fair Trading investigated on the claims regarding the United Kingdom’s top dairy processing firms’ involvement in price fixing agreements. Robert Wiseman and Dairy Crest, the leading United Kingdom’s dairy processors together fixed prices which were paid to milk farmers in the country (Riley and College, 2006). This, being a form of anti-competitive pricing and thus a form of market failure is under correction by the Office of Fair trading in order to increase competitiveness in the market between the dairy processes businesses. As part of its responsibility, the Office of Fair Trading also carried out investigations to the allegations of the House of Fraser department store group corroboration with Oakley to fix the prices of its products-sunglasses. After an investigation which lasted for two years, the Office of Fair Trading reported that the Oakley and the House of Fraser had breached the Competition Act 2002. The House of Fraser was supplied sunglasses by Oakley in the condition that the latter set minimum prices in which the department was to sell the products. The confirmation of the findings meant that the House of Fair Trading, having the powers to fine companies up to ten percent of their turnover would fine the accused companies up to the same amount. The aim of the competitive authority in this case is putting into effect competition and making markets work appropriately for the benefits of the clients. The major principle of the competition policy is to make certain that the welfare of consumers is served best through the introduction of competition in the market in cases where there is existence of monopoly power. Often, these monopolies have been evidenced to be in the network industry for instance telecommunications, energy and transport (Great Britain: Parliament: House of Commons: Trade and Industry Committee, 2007). It is apparent that in these sectors, a distinction should be made between the services offered to consumers directly and the infrastructure. Whilst it is frequently very hard to institute a second competing infrastructure, due to various reasons associated with economic efficiency and investment costs, that is, the natural monopoly arguments related to high minimum efficiency scale and economies of scale (Riley and College, 2006) it is desirable and likely to establish competitive conditions considering the services offered. In this case, the competitive authorizes are responsible in regulating monopolies and mergers. In most circumstances, mergers and monopolies bring about anti-competitive practices in the market such as predatory pricing, collusive practices and restriction of new business entrants and this reduces the level of competition in the market. As a result competitive authorities in the United Kingdom block mergers when they suppose that such an amalgamation will only cause more harm and in addition, obligate monopolies to allow firms to access the market in order to ensure an efficient market with fair competition. Hence, competitive authorities play a critical role in ensuring fair completion by blocking mergers based on consumer exploitation purposes. Competitive authorities on the same time protect other firms from malicious dealings that may result from such mergers. The European Commission (EC) has formulated the notion of separating commercial activities from infrastructure. In this case, the infrastructure is the medium of competition. Whilst certain organizations may have the right to limited ownership in regards to various infrastructure such as electricity or telephone network or the supply of electricity or gas to businesses or individual households, monopolies should grant entrance to various firms aspiring to compete with them in respect to the services provided on their networks (Baldwin et al., 2010). Some of these examples in the United Kingdom include the markets for electricity or telephone communications and gas supply. In this case, the European Commission plays a vital role in correcting monopoly markets, one of the major market failures in many countries (Organization for Economic Co-operation and Development, 2002). The result of monopoly power is that high prices is charged for goods and services as there is no competition between firms and this results to inefficient allocation of resources. The European Commission in its function tends to reduce this inefficiency by allowing other firms to access the market and this as a result leads to increased competition in the market (Organization for Economic Co-operation and Development, 2002). Measuring the benefits of the competition authorities may be difficult, but it’s obviously notable in the UK. The general idea that however exhibits the benefits of the competition authorities is the notion that, effective competition is healthy to the consumer and efficient to businesses in terms of choice, innovation, and quality as well as in terms of measurable prices. Competition authorities are however faced by various challenges as well as external criticism. It is seen as a body that works to establish and bring into light illegal dealings in a business. Even though this is not their primary job, competition authorities in the UK may along the way uncover cartels and other business dealings that are a threat to competition or fair market. In this scenario, competition authorities serve their duty of ensuring that consumers and competitors are in a better position to chose and conduct business respectively. The work done by competitive authorities in the UK has had a great impact directly or indirectly (Weimer and Vining, 2004). It has impacted firms to be more conscious of the market regulations while at the same time offering the best services or products as possible. United Kingdom has also had a great change in business trend just like any other developed country in terms of businesses transacted online. The risk of market failures being manifested online are even higher and the competition authorities have made the business environment safe and consumers free from any kind of inefficiencies. The authorities are not able to establish each detail of indiscipline in the market and may sometimes need to carry out extensive investigations to establish misconduct (Weimer and Vining, 2004). Consumers and other firms are obligated to avail any information that they suspect dubious in an effort to make the markets free and fair for both the consumers and the businesses. Conclusion As discussed in this paper it is apparent that competition is very important as it is deemed to benefit businesses, consumers and the general economy and furthermore, competition assist in improving quality and choice, keeping prices down, encouraging innovation and enhancing economic growth. Competition authorities is responsible for regulating aspects of acquisitions and mergers, taking action against anticompetitive behaviours through the employment of competition law, regulating monopolies and cartels, and informing public authorities, the government, and businesses regarding competition matters. This is the function of correcting market failures in order to enhance competition in the market. In the United Kingdom, there are various competition authorizes including the Office of Fair Trading, European Commission, the Competition Appeal Tribunal and the competition commission. These are the bodies which are responsible for enhancing competition and making sure that it works for the benefit of all. References Amato, G. 2001. The anticompetitive impact of regulation. New York: Edward Elgar Publishing. Baldwin, R., Cave, M and Lodge, M 2010. The Oxford handbook of regulation. Oxford Handbooks Online. Cseres, K. J 2005. Competition law and consumer protection. Kluwer Law International. CUTS, 2003. Competition and Sectoral Regulation Interface, Briefing Paper No. 5/2003 Department for Business Innovation and Skills (BIS), 2011. Competition authorities. http://www.bis.gov.uk/policies/business-law/competition-matters/competition-authorities [Accessed December 1, 2011]. Dube, C. 2008. Competition authorities and sector regulators: What is the best operational framework? http://www.cuts-international.org/pdf/Viewpointpaper-CompAuthoritiesSecRegulators.pdf [Accessed December 1, 2011]. Great Britain: Parliament: House of Commons: Trade and Industry Committee, 2007. Future of UK manufacturing: Oral and written evidence. The Stationery Office. Krugman, P. and Wells, R. 2006. Economics. New York: Worth Publishers. Ledyard, J. O. 2008. Market failure: The New Palgrave Dictionary of Economics. 2nd Ed. Organization for Economic Co-operation and Development 1999. ‘Relationship between Regulators and Competition Authorities’, AFFE/CLP (99)8 Organization for Economic Co-operation and Development, 2002. United Kingdom: Challenges at the cutting edge. OECD Publishing. Riley, G and College, E 2006. Competition Policy. http://tutor2u.net/economics/revision-notes/a2-micro-competition-policy.html [Accessed December 1, 2011]. Rodger, B.J and MacCulloch, A. 2008. Competition Law and Policy in the EC and UK, 4th ed. Taylor & Francis. Weimer, D and Vining, A. R 2004. Policy Analysis: Concepts and Practice. London: Prentice Hall. Read More