Competition keeps markets healthy. Without it, consumers face higher prices, fewer choices, and lower-quality products. That’s where regulatory bodies like the Monopolies and Mergers Commission (MMC) come in. Though the MMC no longer exists in its original form—its functions were absorbed by the Competition Commission and later the Competition and Markets Authority (CMA) in the UK—its legacy remains vital. In this article, I’ll break down how such commissions work, why they matter, and what lessons the U.S. can take from them.
Table of Contents
Why Competition Matters
Markets thrive when multiple players compete. A monopoly, where one firm dominates, distorts this balance. The harm isn’t just theoretical—it’s quantifiable. Consider the Lerner Index, which measures market power:
L = \frac{P - MC}{P}Here, P is price, and MC is marginal cost. A higher Lerner Index indicates greater monopoly power. If P = \$10 and MC = \$6, then:
L = \frac{10 - 6}{10} = 0.4This means the firm operates with 40% markup power—far above competitive levels. Such power often leads to inefficiencies, known as deadweight loss:
DWL = \frac{1}{2} \times (P_m - P_c) \times (Q_c - Q_m)Where:
- P_m = monopoly price
- P_c = competitive price
- Q_c = competitive quantity
- Q_m = monopoly quantity
Example: The Cable TV Monopoly
Suppose a cable provider dominates a local market. Under competition, the price might be \$50 with 1,000 subscribers. As a monopoly, it raises prices to \$80, losing 300 customers. The deadweight loss is:
DWL = \frac{1}{2} \times (80 - 50) \times (1000 - 700) = \$4,500This lost value hurts consumers and the economy.
The Role of the Monopolies and Mergers Commission
The MMC was a UK regulator that investigated monopolies, mergers, and anti-competitive practices. While the U.S. has the Federal Trade Commission (FTC) and the Department of Justice (DOJ), the MMC’s structured approach offers insights.
Key Functions of the MMC
- Market Investigations – Assessing whether a firm controls over 25% of a market.
- Merger Scrutiny – Evaluating if mergers reduce competition.
- Remedial Actions – Imposing remedies like divestitures or price controls.
Comparison: MMC vs. U.S. Antitrust Agencies
| Feature | MMC (Historical) | FTC/DOJ (U.S.) |
|---|---|---|
| Market Share Threshold | 25%+ Dominance | Case-by-Case |
| Merger Review | Mandatory for large deals | Hart-Scott-Rodino Filings |
| Enforcement Powers | Breakups, Price Caps | Fines, Blocking Mergers |
Case Study: The British Airways Case
In the 1990s, the MMC investigated British Airways for predatory pricing. The airline was accused of offering below-cost fares to drive out rivals. The MMC found BA guilty and imposed corrective measures.
Calculating Predatory Pricing
A firm engages in predatory pricing if:
P < AVCWhere:
- P = price
- AVC = average variable cost
If BA’s AVC = \$120 per seat but sold tickets at \$90, this was unsustainable pricing meant to eliminate competitors.
Lessons for the U.S.
The U.S. faces similar challenges—tech monopolies, airline consolidation, and pharmaceutical mergers. The MMC’s structured thresholds (like the 25% rule) could reduce ambiguity in U.S. antitrust cases.
Proposed Reforms
- Clear Market Share Caps – Legislating a 30% dominance threshold.
- Stricter Merger Tests – Requiring proof that mergers benefit consumers.
- Stronger Penalties – Increasing fines for anti-competitive behavior.
Conclusion
Competition regulation isn’t about punishing success—it’s about preserving fair play. The MMC’s legacy shows that clear rules and proactive enforcement keep markets dynamic. The U.S. can learn from this approach to curb monopolistic excesses.
