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. Read the article and respond to the following in your initial post: 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? In your response posts to peers, comment on your own experiences with such industries and on their impact on you. Additionally, discuss whether you agree or disagree with your peer's stance on regulation, explaining why

Answer 1

Examples of firms in an oligopolistic market that abuse their power are the firms in the telecommunications industry, automobile firms, internet, credit card, etc where due to the presence of three to four firms, one believes that the industry is competitive. But in fact it is not because these firms control the level of competition in the industry and charge prices accordingly in the industry.

They abuse their power by charging exorbitantly above their average costs, thus they earn huge economic profits and they essentially collude because they know there is limited competition and as all the firms are charging around the same range, it leaves them room to charge such prices. They also instill barriers to entry which reduces the level of competition.

Consumers are thus charged a very high markup because of this discrepancy and consumers surplus reduces while the producer surplus of oligopolists goes on increasing led by the huge economic profits. Consumers pay a greater markup as there is less competition and because of the increase in concentration of the firms, it also leads to lower quality of services and consumers having to be satisfied with the poor quality of service as compared to the price they are charged.

I agree with the author's feelings about increased government oversight over such industries as it leaves less room for them to charge exorbitant prices and reap exponential profits which harm the ability and quality of services being made available to consumers. If such firms harm the level of competition and pose a threat to competition then they should be regulated by the government.