In what ways can a government create a monopoly? Why might a government do this?

Expert Solution

We know that a monopoly is a market structure characterized by a single firm selling unique goods and services and controlling the whole market.
This monopoly power is sometimes provided by the government through various rules and regulations. The government imposed taxes slowly wipes off competition as small firms will be unable to meet the higher production cost, thereby leaving back only the strongest one in the market.
Governments also provide subsidies that encourages more monopoly power as customers are drawn towards a monopoly firm when the government is providing them subsidies.
Various trade barriers like patents, intellectual property, tariffs, copyrights etc imposed by the government can also help firms in achieving monopoly power.
The government creates monopoly mostly when it needs to protect those firms who wish to eliminate competition and those firms who are undergoing innovations. They also create monopoly in order to achieve greater economies of scale as it can protect the customers by keeping the prices low.

Rahul Sunny answered 1 year ago

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