Notesale: Turn your study into money

Document Preview

Extracts from the notes are below, to see the PDF you'll receive please use the links above

---

What can be done about Monopolies and Oligopolies?
Public Policy towards Monopolies
We have seen that monopolies, in contrast to competitive markets, fail to allocate resources efficiently
...

Policy makers in the government can respond to the problem of monopoly in one of four ways:
A
...
The Act allows
the government used to control mergers and to prevent those with substantial market power from using that power
to restrict or harm competition
...
However, measuring and comparing the social benefit from merger synergies with
the social costs of reduced competition is difficult
...

B
...
Most often, regulation involves
government limits on the price of the product
...

When regulators tell a natural monopoly that it must set price equal to marginal cost, two problems arise
...
The firm would exit the
industry unless the government subsidized it, but getting revenue for such a subsidy would cause the government to
raise other taxes, increasing their deadweight loss
...

Price cap regulation allows the regulated firm to keep all of the benefits from lower costs for a fixed period of time
...

C
...
Monopolies
run by private firms have incentives to: (1) reduce costs if they think they will get some of the benefit in the form of
higher profits and (2) abuse market power if it raises profits
...
Governments have been tending to rely more on private ownership and regulation and less on
public ownership to control natural monopolies
...


D
...
Therefore, some economists believe that it is
best for the government to leave monopolies alone
...
Sometimes doing nothing at all may seem to be
the best solution, but there are clearly deadweight losses from monopoly that society will have to bear
...
To move the allocation of resources closer to socially
desirable level, policymakers’ should try to induce firms in an oligopoly to compete rather than cooperate
...
Getting into
agreements and contracts is a common way to trade in developed and developing countries and is usually support by
the legal system of a country as far as it encourages effective trade practices when it comes to free trade economies
...
This law means that oligopolies cannot
agree to act together and make their markets less competitive
...
And now if we extend this concept a
little more, there are certain conditions which create the structure of a market
...
of

No
...
Governments around the world
have responded to this by enacting laws that restrict the behavior of perfect competition, monopolies and oligopolies
...


Recommendation
A
...

Regulators should seek to ensure that trading venues have in place suitable trading control mechanisms (such as
trading halts, volatility interruptions, limit-up-limit-down controls, etc
...

Trading systems and algorithms should be robust and flexible such that they are capable of dealing with, and
adjusting to, evolving market conditions
...

(2) All order flow of trading participants, irrespective of whether they are direct venue members or otherwise,
must be subject to appropriate controls, including automated pre-trade controls
...
In
addition, regulators should identify any risks arising from currently unregulated direct members/participants of
trading venues and, where any are identified, take concrete steps to address them
...
Regulators: Recommendations
(1) Regulators should continue to assess the impact on market integrity and efficiency of technological
developments and market structure changes, including algorithmic and high frequency trading
...

(2) Market authorities should monitor for novel forms or variations of market abuse that may arise as a result of
technological developments and take action as necessary
...




---