The public interest

The great problem with this approach to monopoly is that it requires some indicators of what is meant by 'the public interest'. The people who have to administer the pol­icy have to come to some decision on whether the trading practices they find in the business world are operating in the public interest or against it. Unfortunately the legislation fyas not given any very clear guide lines. The 1948 Act laid down that in judging whether a monopoly was operating contrary to the public interest the investigators should con­sider all matters which appear in the particular circumstances relevant and among other things the need to achieve the production, treatment and distribution by the most effi­cient and economical means of goods of such types and in such quantities as will best meet the requirements of home and overseas markets.

The 'other things' to be taken into account included, the organisation of industry and trade in such a way that their efficiency is progressively increased and new enterprise encouraged; the fullest use and best distribution of men, materials, and industrial capacity in the UK; the develop­ment of technical improvements, and the expansion of existing markets and the opening up of new markets.

These guide lines have been described by one former member of the Monopolies Commission as a string of plati­tudes, much too wide and general to be of any great assistance to those who had to reach some conclusion on a particular case. One problem of course is that some of these objectives might, in particular circumstances, be incompatible.

For example, a measure which leads to greater efficien­cy may lead to greatly increased local unemployment. It is interesting to note that the 1948 Act did not specifically mention 'competition' among the public interest criteria. The 1973 Act provides more guidance in the form of a new definition of the public interest. This include such phrases as 'the desirability of maintaining and promoting effective competition', the need for 'promoting through competition the reduction of costs and the development of new tech­niques and new products, and... facilitating the entry of new competitors into existing markets'. The emphasis is now much more on competition as a means of stimulating efficiency, but the 1973 Act clearly lays down that 'all matters which appear relevant' must be considered, and it makes particular mention of the need to maintain a balanced dis­tribution of industry and employment in the UK. The aim of promoting competition, therefore, will not be the over­riding consideration. An increase in monopoly power (e.g. by merger) which, it is believed, would improve employ­ment prospects in, say, a development area would most probably be judged to be in the public interest.

Identifying monopoly

If the authorities are going to control monopoly, they have to define it in such a way that a monopoly situation can be clearly identified. The most widely used indicator of monopoly power is that of the market share. In the 1948 Act monopoly was defined as a situation in which at least one third of the supply of a commodity is accounted for by one firm or group of firms under unified control. The 1973 leg­islation has reduced the market share which is considered to be prima facie evidence of monopoly to one quarter.

The market share test is probably the most workable measurement for administrative purposes since it is fairly easily measured. It does not follow that, in itself, it is a good guide to monopoly power. A firm with one quarter of the total market may have great market power (where the rest of the market is shared by numerous small firms), or it may face very keen competition (where the rest of the market is supplied by four or five firms of almost equal size).

Another test of monopoly power is the level of profits. It is usually assumed that the existence of profit levels substan­tially above those being eared in similar industries (or in industry generally) is evidence of the exercise of monopoly power. But, again, this is not conclusive evidence. Such profits may be due to greater efficiency as compared with competitors, and the Monopolies Commission has shown that the existence of monopoly power may reveal itself in low profits due to the inefficiency of companies sheltered from competition.

Monopoly might also be identified by the nature and extent of the barriers to entry. The existence of such barriers would certainly be a factor in deciding whether monopoly conditions existed, but it might be very difficult to measure their effectiveness.