Championing competition
An Office of Fair Trading case study

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Summary

Concepts:

Consumers, competition, firms, OFT, market, businesses, producers, prices, practice, enforcement, investigating, power, government, regulatory, supplier.

Summary:

We live in an economic system that is generally good at channelling scarce resources towards meeting consumers' needs.

One reason for this is that markets are efficient at processing data.

Our spending preferences act as signals to producers; manufacturers and suppliers respond to consumer choices by seeking to supply those goods and services that consumers most want. This is a key feature of a mixed-market economy compared to a planned economy, such as Russia pre 1990, where the government decided what to produce. However, just how well consumers' buying decisions translate into producers' responses largely depends on how competitive a market is.

In healthy markets, firms compete for business by developing better products and/or by offering more attractive terms than their rivals.

So, in many instances, increased competition will lead to greater consumer choice and lower prices, which is why many governments favour it.

Left entirely to their own devices, some businesses may act against consumers' best interests, either on their own or in collaboration with other producers.

Because of this risk, governments set up regulatory bodies to monitor what is taking place.

When there is competition within a market, consumers have a genuine power of choice.

Again, a regulatory body is needed to ensure that businesses supply consumers with adequate, accurate information.

In the UK, the Office of Fair Trading (OFT) has the job of ensuring that markets are competitive, that firms conduct their business fairly, and that consumers' wishes and interests are properly considered.

The work of the OFT's Competition Enforcement (CE) division includes stopping and deterring cartels.

The OFT's Consumer Regulation Enforcement (CRE) division takes action against traders who trade unfairly.

It also encourages organisations in specific market sectors (e.g. electricity suppliers) to set up codes of practice that benefit consumers.

Learning outcomes:

As a result of carefully reading this case study, students should be able to:

  • explain how markets give signals to producers
  • understand the importance of promoting competition between producers/suppliers
  • describe the role and work of the Office of Fair Trading
  • explain how individual consumers have a responsibility to help encourage competition.

Office of Fair Trading | Championing competition