ii) Identify the structure of the market, including the main companies involved and their market shares. Other possible points to raise: Are there any significant barriers to entry? Is the market contestable?
Using economic theory show how a typical firm in this industry may set price and output in order to maximize profits.
. Why may a firm prefer to maximise sales rather than profits? )
iii) Explain how repeated games in game theory may show the optimum pricing strategy for firms in this industry.
iv) Outline the rationale for competition policy. Explain why there have been calls over the last two years for an investigation by the UK competition authority. What action do critics of energy companies propose?
v) What was the value of the UK pound (sterling) against the US dollar from January 2007 to May 2015? Using economic theory, explain this change in the pound’s exchange rate, particularly immediately after the financial crisis in 2008. How this change affects the price of energy in the UK.
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