Though, in many instances, the legislation fails to achieve its original goal, governmental regulation has become a standard in interstate and international commerce. If a firm cut costs by more than X, they can increase their profits. To avoid revolt and turmoil, the state government passed the Granger Laws.
Similarly, the action of the Federal Trade Commission against Microsoft is often viewed as a trifle. Advantages of RPI-X Regulation The regulator can set price increases depending on the state of the industry and potential efficiency savings. Is monopoly a justification for government regulation?
Breaking up a monopoly In certain cases, the government may decide a monopoly needs to be broken up because the firm has become too powerful.
Thus, if water companies need to invest in better water pipes, they will be able to increase prices to finance this investment. Collusion firms agree to set higher prices Collusive tendering.
They result in concentration of economic power, profiteering and growth of unfair trade practices such as hoarding and black marketing. Such negative publicity would affect the sales and profitability of monopolistic combinations and would force them to adopt ethical business practices.
By anti-monopoly laws and policies to prevent unfair price discrimination amongst different consumers Peak load pricing. To answer these questions, one must understand the nature of monopolies.
The efficiency gains from peak load pricing largely depend on the ability and willingness of electricity consumers to reduce its use in the peak-period.
How can their prices be regulated? This may include unfair trading practices such as: Arguably there is an incentive to cut costs. To combat the effects of these large corporations, the government has tried, through both legislation and court cases, to regulate monopolistic businesses.
If the firm is making too much profit compared to their relative size, the regulator may enforce price cuts or take one off tax. How to control monopoly?
They can do this with a formula RPI-X X is the amount by which they have to cut prices by in real terms. Disadvantages of Peak Load 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.
The kink at point E1 on the demand curve causes E1M discontinuity or vertical section of the MR curve. In that ease, the MC pricing can lead to losses to the monopolist.With the government at its elbow, IBM turned away from the business of tabulating machines to enter computing, a field it would revolutionize.
Then. 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.
Monopolies have long been criticized for “miss-allocating” resources as well as affecting general welfare, nevertheless, firms continue their strives in becoming monopolists while governments in many cases tolerate them as oppose to legislate to prevent their emergence.
Monopolies have proven to be very disadvantageous to society. 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.
A monopoly is the sole provider of a good or service. Monopolies prevent free trade and but sometimes they are needed. Federal and local governments regulate these industries to protect the consumer.
Companies are allowed to set prices to recoup their costs and a reasonable profit. 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?