Business – 6.1 External influences – Political and legal | e-Consult
6.1 External influences – Political and legal (1 questions)
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Legal controls shape the competitive environment and strategic choices of firms. Antitrust (competition) law aims to prevent market abuse, while licensing requirements restrict entry into specific sectors.
| Aspect | Antitrust Legislation (e.g., Competition Act 1998) | Licensing Requirements (e.g., Pharmacy, Broadcasting) |
|---|---|---|
| Objective | Prevent collusion, abuse of dominant position, and anti‑competitive mergers. | Ensure public safety, professional standards, and control over sensitive services. |
| Impact on Competition | Promotes market entry and price competition; firms must avoid price‑fixing or market sharing. | Creates barriers to entry; only licensed firms can operate, reducing the number of competitors. |
| Location Decisions | Firms can locate where cost advantages exist, provided they do not create regional monopolies. | Licensing bodies may restrict the number of licences per area (e.g., local pharmacy quotas), influencing where firms can set up. |
| Provision of Goods/Services | Encourages variety and innovation; firms must avoid exclusive supply agreements that limit choice. | Limits provision to entities meeting professional standards; can affect product range (e.g., only approved medicines). |
In summary, antitrust law tends to open markets and encourage competition, influencing firms to adopt cost‑effective locations and diverse product lines. Licensing, by contrast, restricts entry and can dictate where and how certain services are delivered, often leading firms to concentrate in approved zones and adhere to strict operational standards.