What Can And Should The Government Do About Monopoly Essay Example

There is no doubt that in most situations, increased competition between the sellers of certain products leads to higher efficiency that benefits consumers in a society by forcing the sellers to use their resources more efficiently or reduce the prices.
However, if total demand of a certain product is not large enough to allow more than a single seller to product that certain product or in other terms, if multiple sellers of a certain product whose demand is low means that their average total costs will be very high then in such situations monopoly takes place.
Monopolistic businesses exist and they usually provide larger utilities for example natural gas, fuel, postal, railway, airway, electricity, water and sewage. To stabilize the economic condition of a country, the existence of monopolistic industries is of great importance because they help in providing certain products to the citizens at desirable rates. If there are multiple sellers in every industry then economies of scale cannot achieved in a country.
Although monopolistic businesses are valuable for a country but if the government does not regulate them then they can decrease their production and increase their prices, which will create a very big problem for the citizens. Therefore it is highly important that the government regulate the monopolistic competitions in a country. Following are the ways through which government can do so:
- Price Capping
The government can introduce regulatory bodies that establish prices of monopolistic products. These regulatory bodies will keep a check and balance on monopolies so that prices do not elevate more than the established prices and create problems for the consumers.
- Yardstick or Rate of Return Regulation
In this regulation, the government examines the size of the monopolistic business and determines whether the business is getting reasonable profit or too much profit. If it is getting too much profit as compare to their size and capital then the government imposes taxes or price cuts on them.
- Preventing the growth of monopoly power
The government can also make agreements with the monopolistic businesses through which not only the rights of the consumers are protected but the monopolies also gain some advantage.