REGULATION

REGULATION Another way the govemment deals with the problem of monopoly is by regulating the behavior of monopolists. This solution is common in the case of natural monopolies, such as water and electric companies. These companies are not allowed to charge any price...

INCREASING COMPETITION WITH ANTITRUST LAWS

INCREASING COMPETITION WITH ANTITRUST LAWS If Coca-Cola and Pepsico wanted to merge, the deal would be closely examined by the federal government before it went into effect. The lawyers and economists- in the Department of Justice might well decide that a merger...

PUBLIC POLICY TOWARD MONOPOLIES

PUBLIC POLICY TOWARD MONOPOLIES We have seen that monopolies, in contrast to competitive markets, fail to allocate resources efficiently. Monopolies produce less than the socially desirable quantity of output and, as a result, charge prices above marginal cost....

THE MONOPOLY’S’ PROFIT: A SOCIAL COST?

THE MONOPOLY’S’ PROFIT: A SOCIAL COST? It is tempting to decry monopolies for profiteering at the expense of the public. And indeed, a monopoly firm does earn a higher profit by virtue of its market power. According to the economic analysis of monopoly,...

THE MONOPOLY’S PROFIT: A SOCIAL COST?

THE MONOPOLY’S PROFIT: A SOCIAL COST? It is tempting to decry monopolies for “profiteering” at the expense of the public. And indeed, a monopoly firm does earn a higher profit by virtue of its market power. According to the economic analysis...

THE DEADWEIGHT LOSS

THE DEADWEIGHT LOSS We begin by considering what the monopoly firm would do if it were run by a benevolent social planner. The social planner cares not only about the profit earned by the firm’s owners but also about the benefits received by the firm’s...