Question

In at most one typed page, discuss an instance (from real life) of a government (the US government or a foreign one) taking action to promote competition / break-up monopolies. Explain the government’s motivation in this.

Answer 1

The Government may wish to regulate monopolies to protect the interests of consumers.For example to set prices higher in competitive markets. The government can regulate monopolies through:

• Price Capping - Limiting price increases
• Regulation of mergers
• Breaking up monopolies
• Investigations into cartels and unfair practises
• Nationalism- government ownership

Why the Government regulates Monopolies?

• Prevent excess prices - Without government regulation,monopolies could put prices above the competitive equillibrium.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 offer a good quality service.Government regulation can ensure the firm meets minimum standards of service.
• Monoploy power - A firm with monopoly selling power may also be in a position to exploit monopsony buying power.For example,supermarkets may use their dominant market position to squeeze profit margins of farmers.
• Promote Monopolies -In some industries,it is possible to encourage competition, and therefore there wil be less need for government regulations.
• Natural Monopolies - Some Industries are natural monopolies - due to high economies of scale,the most efficient number of firms is one.Therefore, we cannot encourage competition, and it is essential to regulate the firm to prevent the abuse of monopoly power.

Breaking up a monopoly

In certain cases,the government may decide a monopoly needs to be broken up because the firm has became too powerful.This rarely occors.For example,the US looked into breaking up Microsoft, but in the end, the action was dropped.This tends to be seen as an extreme step, and there is no gurantee the new firms would not collude.

The societal and economic dangers of monopolies are clear.To combat the effects of these large corporations,the government has tried,through both legislation and court cases,to regulate monopolistics businesses.Though the strategies that the US has followed have varied,the aim of curbing market hegemony has been relatively constant.Though examples of attempts at government regulation are widespread,three stand out from the rest:railroads of the 19th century,Microsoft, and IBM.

Most regulation of its early history evolved around the railroad industry.At first, the responsibility of control of public industries fell on the individual states.However,the ineffectual legislation that was passes and the inability to control railroad monopolies made the need for federal regulation painfully apparent.The passage of the Interstate Commerce Act in 1887 created the first interstate regulatory committee.Though this group was not extremely effective in curbing the practices of the railroad,the precedent for federal regulation had been set.Later legislation,such as the Sherman,and Clayton,Anti-Trust Acts had more of an effect on large businesses.The latter bill created the Federal Trade Commission which is the major regulatory body of monopolies today.

Forty-seven attorneys general are looking at potential antitrust violations of social networking behemoth Facebook in a New York-led investigation launched September 2019 that has expanded significantly since.The proceedings bring to ight the unchecked growth of a number of companies some say have gottnen too big.

Presidential candidate Elizabeth Warren has taken on this popular position,pointing to companies like Apple and Google and arguing they ought to be broken down into smaller companies that can be more easily regulated.Several of these firms purchased their competitors-such as Facebook's acquisition of Instagram-driving down marketplace competition and any innovation that such competition may have caused.

This concept manifests itself in different ways.Amazon,for example,has made it difficult for smaller competitors to find equity.If someone was to search for baby products using Amazon,the search engine would likely bring up the company's AmazonBasics line before that of ab outside product,with the Basics line priced below competitors.Sometimes, the product shown is not the best,but the one that best played Amazon's obscure seller protection scheme.

With Facebook, the social media giant's inability or unwillingness to protect user's private data was largely brushed off, as the company has fewer viable competitors.The Company's recent decision to do nothing against misleading or factually incorrect political ads has many feeling that the company may be dangerously unaccountable.

A monopoly is defined as a business or cartel of businesses that has-because of its size and/or market position-dominated most or all aspects of an industry,including the ability to compete.Not all of these cases resulted in sucessful verdict:however, all 15 are considered significant because they either changed case laws or how we came to use the products in question.

In the United States,major federal antitrust legislations include the Sherman Act of 1890, the Clayton Act of 1914, and the Federal Trade Commission Act of 1914.While these laws have not been used to break up a business since the aborted attempt on Microsoft in 2001,they do form the basis of the federal government's mechanism to handle unfair trade or business practices.The Sherman Act,particularly,bans the practices of price-fixing,business cartels, and collusive anti-trade prcatices,as well as prohibits monopolistic practices.The Clayton Act bans mergers and acquisitions where the main goal is to limit competition.

Typically, an accused business or cartel must be found guilty of antitrust actions "per se", or the act is an antitrust act without the need to consider extrinsic circumstances,or by using the "rule of reason".The "rule of reason" requires that the circumstances surrounding the act must have caused "restraint of trade" through precedent or example.This could be proving that fixing prices restricts competition or that denying broadcasting of a game to drive ticket sales is restricting supply.