Question

The United States has a variety of regulations to address the economic harm resulting from monopoly power in an industry. This includes the Sherman Act of 1890, the Clayton Act of 1914, and the Federal Trade Commission Act of 1914. These acts were aimed at restricting the formation of cartels and monopolies to protect consumers and ensure competition. The article The Oligopoly Problem argued that oligopolies fall through the cracks of these regulations and leave consumers unprotected from harmful business practices where industries are highly concentrated.

• What are examples of firms in an oligopolistic market that abuse their power? Explain how they abuse their power and describe the impact on consumers.
• Do you agree with the author's feelings about increased government oversight of such industries? Why or why not?

Please help me with my microeconomics discussion :(

Answer 1

top five points:

1) Adam Smith's proposed benefits from laissez faire / perfect competition depends upon a critical assumption: there are no barriers to entry, firms can enter and exit freely.

2) If this assumption is violated (like it usually is in the real world with legal, cost and informational barriers) then firms have market power i.e. they can restrict quantity to exert significant influence on the price. Moreover if the number of firms is small enough (e.g. duopoly is an extreme case) then firms can collude (implicitly and/or explicitly, though explicit collusion is legally forbidden) to restrict quantity and maximize profits instead of competing with each other.

3) Many oligopolistic (non-competitive) industries in the US - cellular, Internet and cable services; airlines - are actually government protected.

4) Walmart is a prominent example by name, in that because of its scale of operation (enabling increasing returns to scale) and the vast expanse of its global supply chain (which represents an Informational Barrier to entry for other producers) Walmart can undercut smaller businesses in price wherever they go.

5) The reason the government can't easily take action against them - unlike Standard OIl and Microsoft, former monopolies which were forced by the government to split up - is that oligopolies are harder to prove. Monopoly means exactly one firm, but there's no characteristic number of firms in an oligopolistic market - so it's hard to differentiate an oligopolistic move from a normal competitive market action.