PUBLIC POLICY TOWARD OLIGOPOLIES
One of the Ten Principles of Economics in Chapter I is that governments can sometimes improve market outcomes. The application of this principle to (monopolistic markets is, as a general matter, straightforward. As we have seen, cooperation among oligopolists is undesirable from the standpoint of society as a whole because it leads to production that is too low and prices that are too high. To move the allocation of resources closer to the social optimum, policymakers should try to induce firms in an oligopoly to compete rather than cooperate! Let’s consider how policymakers do this and then examine the controversies that arise in this area of public policy.
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