The Role of Government Policy in the UK Market

Public and Merit goods

In a situation where business firms are found in a free market economy business entrepreneurs will only be aiming to gain in return of their goods and services. Therefore some services and goods and services essential to the society will not be provided forcing the government to come in and provide them. This is therefore what leads to public and merit goods (Fiorito and Kollintzas 2). Therefore, Public goods are commodities provided by the government in a free market economy because the private firms would not provide them. The finance that the governments use to provide the public goods is obtained from taxation of citizens. The private firms refrain from providing them because of the mare reason that they cannot adequately charge them on the public. In addition if private firms in the market are left to provide public goods they will be inadequate and of low quality hence undesirable. There will also be the notion that the goods or servces will be provided by other individuals in the market hence leading to neglect. Examples of public goods include; street lighting, national defence, national reserves and parks just to mention but a few. Public goods have two distinct features which make them fit in that class of public goods. They are non-excludable meaning that on provision it is not possible to bar people from using them. They are thus used by the general public whether they have paid or not paid for them. This consequently leads to the issue of free-riding. Free-riding means that everyone has access to such goods despite the fact that they have not paid for them. Free-riding occurs in the case of street lights, public roads, natural scenery such as oceans and forests among others. The other feature of public goods is that they are non-rival to mean that the use of the good by one individual does not hinder or minimize the use of the same good by the other person. It is because of these features that private firms do not provide public goods leaving it in the hands of the government (Fiorito and Kollintzas 2).

Merit goods on the other hand are those goods which the entrepreneurs would provide them in a free market economy but in minimal quantities. The goods are of importance to the public and thus if left in the hands of the private firms there will be under-provision of the same. It is for this reason that the government comes in to supplement or fully provide them. Good examples of merit goods are health care, education, fire services among others. These are essential to the society because they are needed to maintain a reasonable standard of living yet very expensive to provide and if left in the hands of the private investors they will only be for the rich, while the poor who cannot afford will not be able to acquire them. It is because of this that the government provides them to cater for everyone in the society. At the same time, a free market economy also gives room to overprovision of other goods which have a negative impact on the society (Fiorito and Kollintzas 2). These are known as demerit goods and an example is recreational drugs. The study of welfare economics depicts that without the government intervention many goods and services would be underprovided.

Why the Government allowed the merger of Carlton and Granada

Just like other governments the government of United Kingdom has a role to play in the market economy of the nation. Some of the policy measures it is entitled to include; health care, transport, the market competition and other social amenities. The government plays key roles in ensuring that the resources of the state are effectively and efficiently used. This is meant to avoid failures in the market which could take the form of imperfect competition, externalities, missing markets among others. The government does this by enacting policies that govern the market operations thus ensuring perfect markets. This is what makes the government intervene in market mechanisms through the budget to provide public and merit goods among other policy goals. Such intervention could be through the use of competition policy where the government controls the competition between organisations in the market hence enhancing fair trade. The competition policy is made up of a number of legislative processes that are geared towards enhancing competition. This policy is of great essentiality as competition plays a big role in the efficiency of both domestic and international markets. The competition policy of the United Kingdom is made up five principal acts of the parliament including; fair trading Act 1973, competition Act 1980, competition Act 1998, Resale prices Act 1976 and the Restrictive Trade practices Act 1976. It can thus be depicted that the government of UK is committed to competition although at times it allows a dominant force in a market. Competition policy could be affected by factors such as taxation, intellectual property rights among other framework policies and instruments.

An important competition policy is that is that of mergers and acquisitions. Mergers if effectively utilized play a great role of redistributing the resources of the state. The competition policy therefore critically analyses the mergers before they are authorized so as to ensure that they do not have negative impacts on the economy. A merger entails the coming together of two or more companies through share acquisition to form one large company. To qualify a merger, two tests are performed, that is the assets test and market share test.

This policy has been applied to the UK market whereby the legislation prohibits a matter only when they are against the interests of the public. Just like other policies, the government intervenes through the use of policy instruments such as taxation and regulation just to mention but a few. Thus the concept of competition policy is pretty well applied in monopolies of the United Kingdom. For example in the recent past the government of United Kingdom was faced with this task of subjecting two mergers to the performance tests so as to qualify one between the two (IBE 1). The government had to make a choice between the merger of Carlton and Granada and that of Tesco, Sainsbury and ASDA. After an analysis of the two mergers, the government settled on Carlton and Granada to take over the Safeway while denying the other companies that opportunity. In this situation, the merger was aimed at benefiting both the viewers as well as independent producers. This would be through better quality of programmes and options of selection of the programmes. The investigating commission found that Carlton and Granada which was merging as Morrisons had adhered to the aforesaid expectations by agreeing to the proposals of the ICT (Hughes 690). In addition the Carlton and Granada had passed the asset test hence qualifying as mergers. The investigating commission also found out that by accepting the merger of Morrisons only forty eight Safeway stores would be sold off so as to make sure that competition in the region is not compromised. If the other bidding mergers such as that of Tesco, Sainsbury and ASDA were accepted, the public would not be given the opportunity to enjoy the services by the high competition in the market. In addition, looking at the shareholdings of Tesco-26%, Sainsbury-16% and ASDA-17% meant that their merger would be less than the shareholding of Carlton and Granada therefore leading to high competition from the latter merger which had passed the market share test (Hughes 690). Therefore, the better option of the two mergers was Carlton and Granada which in the long-run was qualified as the merger to take up the Safeway thus leading to a company holding substantial share in the market. (IBE 1). This was because it was believed that the formed company would be in a position to take over the Scottish, Grampian and Border Television stations.


As mentioned above, state mergers and acquisitions are the responsibility of the government so as to ensure efficient use of state resources. The government looks at the goods and services to be provided by the merging companies but putting more emphasis on public and merit goods. Another important policy the government looks at is that of monopolies. It is advisable that the tenders are awarded to the monopoly companies. This avoids competition in the market which might lead to a collapse of the other company if it is preferred over the monopoly company. In the above case, Carlton and Granada had monopolistic characteristics over the Tesco, Sainsbury and ASDA merger (Hughes 690). Letting, the Tesco, Sainsbury and ASDA merger take up the Safeway would mean increased competition in the market which would result in market failures for example, low quality services in a bid to offering low prices. It can therefore be concluded that the government made the right choice by letting Carlton and Granada take up the Safeway because it had monopolised its services. The fact that it was the monopoly of the two would ensure healthy competition hence the public would equally receive the services. That way the purpose of benefiting the viewers and the independent producers would be achieved.


Fiorito Riccardo and Kollintzas Tryphon. Public Goods, Merit Goods and the Relation Between Private and Government Consumption. 2002- 2011.

Hughes, Mathew et al. UK Merger Control. 2004-Sweet and Maxwell. 2ed

International Broadcast Engineer. Carlton- Granada merger gets go ahead.2003-2011. Web.

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DemoEssays. "The Role of Government Policy in the UK Market." February 17, 2022.