Should governments legislate to prevent monopolies

Hotels at hill stations have peak period in summer and off-peak period in monsoon. The monopolist wants to sell OX units at price OP. Contrast a coercive monopoly like the Post Office with a natural monopoly such as Microsoft.

At first, the responsibility of control of public industries fell on the individual states. The traffic rush on roads is more after office hours. Such actions affect growth and development of the economy.

Such businesses whose electricity demand is mainly in the peak period and who find it difficult to shift its use to the off-peak period will be harmed as they have to pay higher prices.

Firms will take it in turns to get the contract and enable a much higher price for the contract. Monopolies are not helpful for the social and economic development of a country. To combat the effects of these large corporations, the government has tried, through both legislation and court cases, to regulate monopolistic businesses.

The earliest regulatory measures were not as focused on competition, however. A tax such as a profit tax or license fee are imposed on a firm regardless of its level of output. The government can easily correct the damage done by coercive monopolies by simply removing government favors and barriers to entry in the marketplace—e.

Also, rate of return regulation may fail to evaluate how much profit is reasonable. This limits monopoly power. Although these regulations may have merits, they reduce the profit motive that lures the innovators to come in and compete against the monopoly.

Specific taxes are commodity taxes like excise duty and sales tax.

How to control monopoly in economy?

If a firm cut costs by more than X, they can increase their profits. Therefore governments all over the world try to prevent and control monopolies in the national interest.

Imposition of Lump Sum Tax: By regulation of conditions of monopoly, as in case of natural and regulated monopolies MC pricing. Predatory pricing setting low prices to try and force rival firms out of business Vertical restraints — prevent retailers stock rival products Selective distribution For example, in the UK car industry firms entered into selective and exclusive distribution networks to keep prices high.

Consumers will purchase OX1 in the off-peak period. With this price, consumers will purchase OX units in the peak hour.

Above figure 21 is the evidence of the following results: For example, monopolies have the market power to set prices higher than in competitive markets.

The Competition commission can decide to allow or block the merger. Disadvantages of Peak Load Pricing: Measures taken to control monopoly in economy The following are some of the measures taken by Governments to control monopoly in economy. However, the ineffectual legislation that was passed and the inability to control railroad monopolies made the need for federal regulation painfully apparent.

They result in concentration of economic power, profiteering and growth of unfair trade practices such as hoarding and black marketing. And if the monopoly is maintained through superior prices and service, there is no economic problem anyway. This is when firms allow costs to increase so that profit levels are not deemed excessive.

Microsoft has been considered a monopoly by many for the last two decades, and has even been subject to antitrust charges from the government. It saves cost and adds to efficiency gain from peak load pricing. Another trend in regulation is the unfortunate tendency of legislation to have little effect.3.

"Governments should legislate to prevent monopolies becoming too powerful." Do you agree? 4. "Free trade policies are always better than protectionist ones." 5. "Governments should not subsidize enterprises which are unprofitable." 6. "Countries should try to become self-sufficient in food and basic necessities." Do you agree?


In general, there are three types of monopolies. One type is a monopoly because it offers better products/services at a lower cost than its competitors or because it creates an industry of its own.

Regulation of monopoly

This type of monopoly is "good" and usually well-liked by governments. Boeing is a classic example. Most regulation in its early history revolved around the railroad industry. At first, the responsibility of control of public industries fell on the individual states.

However, the ineffectual legislation that was passed and the inability to control railroad monopolies made the need for federal regulation painfully apparent.

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. Monopolies create entry barriers, try to eliminate competitors and prevent the entry of new firms.

Top 3 Methods of Controlling Monopoly (With Diagram)

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.

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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