Competitive markets provide the best means of ensuring that the economy's resources are put to their best use by encouraging enterprise and efficiency, and widening choice.
Where markets work well, they provide strong incentives for good performance - encouraging firms to improve productivity, to reduce prices and to innovate; whilst rewarding consumers with lower prices, higher quality, and wider choice.
By encouraging efficiency, competition in the domestic market - whether between domestic firms alone or between those and overseas firms - also contributes to our international competitiveness.
Where markets operate freely and effectively competition can be expected to bring all the benefits mentioned above. However, markets can and do fail. Competition policy is therefore used to ensure the efficient workings of markets and to avoid such market failures, most notably to prevent abuses of market power (that is less innovation, higher prices, lower choice, and lower quality than would result from efficient competition).
Competition analysis seeks to determine whether existing or proposed agreements or practices have led or will lead to abuses of market power, and if so to impose remedies to rectify the problem.
Market power arises when one or a small number of firms dominate a market and it is difficult for other firms to enter. Governments at all levels have an important role to play when this happens. The key to a successful framework for government policy is to focus on market failure to ensure that interventions are targeted on the problem.
Therefore, the overall aim of Government competition policy is to encourage and enhance the competitive process to bring the wider benefits to the UK economy.
Benefits from Competition
The Benefits from Competition Report (PDF, 374KB) to the Department by the Centre for Competition Policy, University of East Anglia, assembles a small number of case studies which illustrate, in a non-technical way, the benefits of introducing competition into UK markets in which, previously, it had been absent or muted.
The chosen markets are: Retail Opticians, International Telephone Calls, Net Book Agreement, Passenger Flights in Europe, New Cars, and Replica Football Kits.
Public Policy: Using Market-Based Approaches
The Public Policy: Using Market based Approaches report (PDF, 604KB) (URN 05/1492), completed by a team at LECG for the interdepartmental Competition Forum, examines how competition and market forces can be used to improve the way that public policy is implemented. It develops the evidence base surrounding the benefits and pitfalls of using competition and market-based approaches and draws out practical lessons that will help policy makers in future policy development.
For a shorter summary see Lessons & Guidance for Policy Makers (PDF, 74KB) (URN 05/1519)
Printed copies of both of the above reports may be ordered on our publications page.