The term competition policy refers to measures intended to promote and protect competition. This is accomplished by preventing collusion among firms and by making it difficult for firms to exercise excessive market power. That is, competition policy refers to the set of rules designed to promote and protect competition and restrict monopoly practices and these include oversight of mergers, prohibition of price fixing and agreements (tacit or explicit) for sharing the market and other behaviour that might restrain competition.

In markets where competition is deemed either socially undesirable (e.g., in the presence of a natural monopoly) or not feasible, then price and services regulation might be required. This entails governments having a role in determining the maximum prices that regulated businesses can charge their consumers. Moreover, the presence of market failures (e.g., the existence of externalities or asymmetric information) might result in governments playing a role in determining outcomes (for example, by requiring employees to provide a safe work environment) in these markets. Regulatory economics studies the impact of removing or imposing regulations that govern behaviour in markets.

The series of reforms that followed the redefinition of the role that governments should play in the provision of goods and services - sometimes known as microeconomic reforms, which involved privatization, corporatisation and the break up of vertically integrated government-owned firms - increased the need for both competition policy and regulation.

In particular, this process resulted in changes in legislative instruments, such as the Trade Practices Act, and regulatory policy guidelines, such as the ACCC's Merger Guidelines. These instruments drew from a large extent on economic design principles.