Should governments legislate to prevent monopolies

Investigation of abuse of monopoly power In the UK, the office of fair trading can investigate the abuse of monopoly power. The monopolist always try to include as many assets in its capital base as possible in order to be able to sell at higher prices. Generally, specific tax is similar to a variable cost.

Sometimes, the government levies a lump sum tax on monopolists. In that ease, the MC pricing can lead to losses to the monopolist. Thus, if water companies need to invest in better water pipes, they will be able to increase prices to finance this investment.

Thus, many steps are suggested regulating monopoly. Contrast a coercive monopoly like the Post Office with a natural monopoly such as Microsoft.

How to control monopoly in economy?

Governmental action According to the noted economist, Joan Robinsonthe government should impose taxes and provide subsidies. The monopolist will never increase output beyond X2, in which case he would incur losses.

The interests of the monopoly business gain precedence over the national interest.

Top 3 Methods of Controlling Monopoly (With Diagram)

ORR — Office of rail regulator. Additionally, government regulations often create legal barriers to entry, which crushes smaller competitors. The monopolist sells OX2 units of output at priceOP2.

Peak load pricing have the following disadvantages: It ensures efficient distribution of the use of electricity between the peak and off-peak periods.

This is when firms allow costs to increase so that profit levels are not deemed excessive. Figure 21, shows how the discriminating monopolist charges different price of electricity in peak and off-peak period.

When demand is more, it is called peak period, when less the off-peak period. K is the amount of investment that the water firm needs to implement. Amongst their functions, they are able to limit price increases.

The goal was to protect the consumer.Monopolies create entry barriers, try to eliminate competitors and prevent the entry of new firms. Consumers interests are greatly affected because of the growth of monopolies. They are forced to pay high prices for sub standard products as they do not have any other choice.

And if so, should the government step in and protect society? To answer these questions, one must understand the nature of monopolies. There are two types of monopolies in an economy: the natural monopoly and the coercive monopoly. The reason the government should not regulate monopolies--assuming merely for the sake of argument that any would exist at all in a proper society--is that the monopolies DO NOT VIOLATE ANYONE'S RIGHTS.

Why the Government regulates monopolies. Prevent excess prices. Without government regulation, monopolies could put prices above the competitive equilibrium.

This would lead to allocative inefficiency and a decline in consumer welfare. Quality of service. If a firm has a monopoly over the provision of a particular service, it may have little incentive to. Government produce monopolies, they cannot prevent or stop them.

Monopolies develop only under some kind of government protection. Like: A government tries to prevent foreign companies to enter local market and as result local monopolies start to.

Monopolies don’t drive innovation if they actually reach true monopoly status, they don’t have worries, they just need to spend their energy cutting the throats of their competition, and rest on their laurels, and don’t innovate because it costs money.

Should governments legislate to prevent monopolies
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