Can Big Business be Controlled? Regulation

Learning Outcomes  To understand the idea of regulation.  To appreciate that self-regulation is an option in controlling a firm’s behaviour.  To understand the main role of the competition authorities in the UK and the EU.  To understand the nature and role of pressure groups in influencing business behaviour.

Starter  Can market control be measured? What makes one company a monopolist and another not?  Hint – think market share and the power this may bring over different stakeholders.

What is a can regulation do? Regulation exists to prevent businesses from exploiting their control of a market. Regulation may exist of:-  Price controls so that businesses cannot impose unreasonable prices.  Setting minimum quality standards backed up by ways to complain if the customer feels they are treated unfairly.  Preventing businesses acting in socially unacceptable ways, such as promoting binge drinking.  Ensuring a business provides a service for all customers, such as those in remote areas that may not be as profitable. Failure to follow regulations can lead to large fines or being forced to see part of their business to reduce market share.

What is the right amount of regulation? No regulation  No requirement to offer warranties  Quality of products could be poor  Quality of service could be poor  Dishonest businesses may ‘rip off’ customers  Could endanger customer safety Just because there is no regulation it does not mean that businesses will take advantage of people. Customers are still likely to use businesses with a positive reputation and businesses will act in a way to build that reputation.

What is the right amount of regulation? Self-regulation This is where a group of businesses may agree to regulate their own conduct.  A code of conduct will need to be drawn up  Businesses can choose their own level of regulation  They can also chose potential punishments  Self-regulation is not legally binding  Businesses could chose to ignore the rules You may think that businesses would not bother signing up if they think they can avoid punishment by not agreeing to self regulation. However, customers may choose a business based on their membership to a self- regulating body.

Regulation  Task 1  Research a particular industry that self regulates.  What is the name of the organisation that regulates them? (they may be more than 1)  What powers do they have?  What punishments can they give out?

What is the right amount of regulation? Government regulation The Government may create laws that force a business to act in a certain way.  Following these laws is compulsory  Guarantees consumer protection  Can be expensive and time consuming to follow  May reduce competitiveness & innovation  Can result in higher prices Competition laws are enforced by the Competition Commission in the UK. They ensure that any mergers or takeovers do not make a business so large that it unfairly affects competition and therefore the customer

Regulation  Task 2  Research a recent example where the government have introduced regulation.  What did the government do?  Why was this regulation implemented?  What was the impact of this regulation on:-  The businesses?  The customers?

Conclusion Consumers are vulnerable to businesses that have a degree of control over the market. Businesses prefer to regulate themselves but they are tempted to do as little as possible to keep customers happy. The government can get involved but are criticised for slowing businesses down and costing them extra money, which can end up hurting customers. The best solution is to ensure there is proper competition in the market as competitive businesses will always try to provide a better service for customers in order to earn bigger profits

Revision Essentials  Competition Commission – a UK & EU government organisation that prevents businesses taking advantage of their market position.  Government Regulation – where the government uses laws and punishments to influence how the businesses behave.  Self-Regulation – where companies voluntarily agree to create and follow their own code of conduct.

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Exercise Pg 85