Question

Questions 4

The issue of monopolies and avoiding monopolies is a relevant theme of American business and something the U.S. government attempts through regulations to prevent. Examples of potential monopolies in the U.S. include Microsoft, Ticketmaster, and even Wal-Mart. Why does the class think some areas of business have come to be dominated by a particular company and should government undertake actions including legal actions that could result in the break-up of a successful company? Explain

Answer 1

This is very true that these companies dominate the market, which actually affects consumers by higher price, lower quality, etc. They have so large market share (it establishes their monopoly power) that no new entrant in the market can able to throw competition to them.

Suppose we can take company M as an example. The business of the company is to produce and sell IT products, such as computer operating system. This product is so popular (because it is easy to use) that no one can even think about of using computer without M’s operating system. This kind of monopoly power helps the company of charging higher price, which reduces consumer surplus and total welfare.

This is not a healthy business environment. The government of the country must ensure free-economy, where firms become price-taker but not price-giver and it is determined through market demand and supply; if it is done the market gets the maximum surplus and the economy gets the maximum welfare. This could only be done if the market has more and more competitors; the government should relief taxes, fees, and formalities so that new entrants can come in the market and at the same time charge tax to M for their higher price level.