Study Notes

Competition and Markets Authority (CMA)

Level:
A Level
Board:
AQA, Edexcel, OCR, IB

Last updated 22 Mar 2021

The CMA is the UK's primary competition and consumer authority. It is an independent department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law. From 1 April 2014 it took over the functions of the Competition Commission

What do the regulators do in their respective markets?

  • Monitoring and regulating prices: Regulators aim to ensure that companies do not exploit their monopoly power by charging excessive prices. They look at evidence of pricing behaviour and also the rates of return on capital employed to see if there is evidence of 'profiteering.' For example, recently the EU Competition Commission has enforced a number of cuts in the charges that can be made by mobile phone businesses when customers travel overseas. When setting price caps, regulators need to decide how much profit companies should be allowed to earn in exchange for the risks they are asked to take.
  • Standards of customer service: Companies that fail to meet specified service standards can be fined or have their franchise / license taken away. The regulator may also require that unprofitable services are maintained in the wider public interest e.g. BT keeping phone booths open in rural areas and inner cities; the Royal Mail is still required by law to provide a uniform delivery service at least once a day to all postal addresses in the UK
  • Opening up markets: The aim here is to encourage competition by removing or lowering barriers to entry. This might be achieved by forcing the dominant firm in the industry to allow others to use its infrastructure network. A key task for the regulator is to fix a fair access price for firms wanting to use the existing infrastructure. Fair both to the existing firms and also potential challengers. A good example to use here is the attempt in the UK to introduce more competition into the banking industry by encouraging the entry of challenger banks to compete against the large established commercial banking businesses.
  • The "Surrogate Competitor": Regulation can act as a form of surrogate competition – attempting to ensure that prices, profits and service quality are similar to what could be achieved in competitive markets. Fear of action by OFT and other regulators may prevent anticompetitive behaviour (i.e. there will be a deterrent effect)

Protecting the public interest

The key role of competition authorities around the world including the European Union is to protect the public interest, particularly against firms abusing their dominant positions

A firm holds a dominant position if its power enables it to operate within the market without taking account of the reaction of its competitors or of intermediate or final consumers.

An example of this happened in the summer of 2014 when the Competition and Markets Authority (CMA) recommended a full competition inquiry into UK retail banks claiming that the market for current accounts was not sufficiently competitive to work in the consumers' interest.

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