Question

Explain why it might be both socially and economically beneficial for governments to regulate the merger activity of firms in highly concentrated markets (Oligopoly markets) such as the wireless phone industry or the cable-TV industry?

Answer 1

Oligopoly is the market situation were small number of sellers with no monopoly power. Here the existing firms will collude each other to attain economic profits and provide same benefits to the consumers. The protection of consumers through lowering barriers to entry, antitrust laws and price ceilings. Both the wireless phone industry and cable TV industry are come under cartels. This cartel will determine the prices and the level of profit in the industry. So there is less government intervention in the market. The cartel determines all the activities. These cartels will also reduce the competition. The different cartels determine its price level and the demand in the market.
This cartel will reduce the uncertainty in the market regarding price and quantity. Here the role of government is very low. This will increase the social and economical benefit to government. The government measures were not needed for this, because every expense and financial needs were maintained by the cartel itself. The measures taken by cartels will determine the development of that particular industry and the whole economy. Here there is high development acquired through this under free market. On the other hand, cartel agreements are uneconomical in nature. The members who have the power to change the price below the market agreed price level. The government benefits were increased through this. The low intervention will ensure high level profits for the firms also.