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?

Answer 1

Monopoly power in industries;-

Monopolies always reduce theeconomic wealth of society in many ways. Hense, governments regulatemonopolies with the objective of benefiting societies more than would be the case if the monopolies maximized their plrofits. there are 3 major methods to increase three major methods to increase the benefits of monopolies to society.

1. Removing or lowering barriers to entry throuh antitrust law so that other firms canenter the market to compete;
2. Regulating the prices stshat the monopoly cancharge;
3. Operating the monopoly as a public enterprise.

The main purpose of antitrust laws is to prevent business practices that either create or maintain a monopoly. Although this article discusses US antitrust law, the basic principles will still apply worldwide, since monoplies operate much the same in most modern economic. Moreover,many of thelegal remedies available in different countries will be similar, since they address similar situations.

In the US, the 2 major antitrust laws are the Sherman antitrust Act, passed in 1890, and the clayton Antitrust Act, passed in 1914.

The sherman Antitrust Act is the broadest of the antitrust laws, prohibiting practices whose main objective is to create or maintain a monopoly. The Sherman Act does not define monopoly, but it is well established that it involves any firm that has a power to significantly affect prices and exclude competition in a particular market.

The US supreme court defined monopolization as involving 2 comoponents; the posssession of monopoly power in the relevant market, and the willful acquisition or maintenance of the power that did not occur necause of the grwoth or development of a superior product, superiot business acumen, orhistoric accident. Even the attempt to monopolize is prohibited, but only if the attempt has a reasonable probability of success. In other words, the would be monopolist must possess some degree of market power, where it has a reasonable chance to become a monopoly.

While it is not illegal to have a monopoly position in a market, the antitrust laws make it unlawfull tomaintain or attempt to create a monopoly through tactics that either unreasonably exclude firms from the market or significantly impair their ability to compete. Because some business operations shave no legitimate business reason,while other may have legitimatem business objective, there are 2 different types of analysis applied indetermining whether a practice violates antitrust laws under the sherman Act.

Oligopoly:- Oligopoly is when a small number of firms collude, either explicitly or tacitly, to restrict output and fix prices, in order to achieve normal market returns.

Economic legal and technological factors cancontribute to the formation and maintenance, or dissolution, of oligopolies.

The major difficulty that oligopolies face is the prisoner's dilemma that each ;member faces, which encourages each member to cheat.

Government policy can discsourage or encourage oligopolistc behavior, and firms in mixed economies often  seek government blessingfor ways to limit compoetition.

Oligopolies in history include steel mlanufactures, oil companies, railroads tire, manufacturing, grocery store chains, and wirless carriers. The economic ;and legal concern is that an oligopoly can block new entrants, slow innovation, and increase prices, all of which harm consumers. Firms in an oligopoly set prices,whether collectively in a cartel or under the leadershsip of one firm, rather than taking prices from the market, Profit margins are thus higher than they would be in a more competitive market.

The principle probleml that these firms face is that each firm has an incentive to cheat; if all firms in the oligopoly agree to jointly restrict supply and keep prices high, then each firm stands to capture substantial business from the others by breaking the agreement undercutting the others. Such competition can be waged through prices, or through simply the individual company expanding its own output brought to market .

Examples of Oligopolies:-

1. National mass media and news outlets are a prime example of an oligopoly, with 90% of US media outlets owned by six corporations;Walt disney, Time warner, Viacom CBS, NBC universal, and News Corporation.
2. Operating sysstems forsmartphones and computers provide excellent examples of oligopolies. Apple ios and Google Android dominate smartphone operating systems, while computer opeating systems are over shadowed by Apple and Windows.
3. Automobile manufacturing another example of an oligopoly, with the leding auto manufaturers in the US being Ford, GMC and fiat chrysler.

Impact on cosumers:-In a oligopoly market, sucsh as supermarket industry in the UK< the price stabilization and the lack of the price ompoeteition benefit consumers, on the other hand, collusion exsisting in the oligopoly will maintain the price in high which do harm to consumers. This is becasue firms collude to raise prices, as mentioned earlier, resulting in the price level seen below. This reduces the consumers surplus available, reducing the welfare of individuals. This can often be highly regressive, if the impact  of increased prices, suc h as with the Big Six Gas suppliers, has a disproportionate impact on the less well off. Further more, because firms are working togehter, with internal quotas to divide up sales,there is less need to comopete, resulting in less dynamic efficiency. This results in less innovation, and thus little improvemnet in the quality of products available to indiviudals. Indeed, the UK competition and Markets authority supports this claim,.arguing that collusion canresult in " reducions of output. efficiency, innovation and choice, all of which are harmful to Consumers."

Goverment oversight of such industries:- Government somethimes respond to oligopolies withlaws against price fixing and collusion. Yet a cartel can price fix if they operate beyond the reach or with the blessing of governments. OPEC is one example of this since it is a cartel of oil producing states with no overaching authority. Alternatively, in mixed economies, oligopolies often seek outand lobby for favourable government policy to operate under the regulation or even direct supervision of goverment agencies

The government of the US plays a very prominent role in regulating the activiteis of oligopolies, mainly through the enforcemnet of antitrust laws. These laws largely began with the Sherman antitrust Act of 1890.

The government regualtes oligopoly by selceting smaller companies competing with each other in a market. Therefore, the chosen companies become cartels of business operations that occur with in different business environment in a state. Besides, the government selects the small comopanies to influence relianle resource distribution measures that ensure businessess with in a market have access to rsources provided bh the government. further, the government does not select monopolies to control a market's activites to prevent the unequal distribution of government supplied resources and price gouging. Price gouging is the act of putting high charges on consumer goods when the demand increase, but the supply is law.