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9.3: Market Power- Governmental Options

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    210867
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    Two possible solutions to the natural monopoly puzzle are regulation and antitrust laws. It may be possible to allow the natural monopoly to operate and then have the government attempt to either regulate or legislate a more efficient outcome.

    The Department of Justice (DoJ) is the government agency in charge of enforcing antitrust laws. Below is a statement from the DoJ describing their role in the marketplace:

    The historic goal of the antitrust laws is to protect economic freedom and opportunity by promoting competition in the marketplace.

    Competition in a free-market benefits American consumers through lower prices, better quality, and greater choice. Competition provides businesses the opportunity to compete on price and quality, in an open market and on a level playing field, unhampered by anticompetitive restraints. Competition also tests and hardens American companies at home, the better to succeed abroad.

    The Division prosecutes serious and willful violations of the antitrust laws by filing criminal suits that can lead to large fines and jail sentences. Where criminal prosecution is not appropriate, the Division institutes a civil action seeking a court order forbidding future violations of the law and requiring steps to remedy the anticompetitive effects of past violations.

    Source: http://www.justice.gov/atr/about/mission.htm

    Regarding regulation, there are a host of government agencies in charge of regulating natural monopoly behavior. Some are:

    • Commodity Futures Trading Commission (CFTC)
    • Environmental Protection Agency (EPA)
    • Federal Aviation Administration (FAA)
    • Federal Communications Commission (FCC)
    • Federal Energy Regulatory Commission (FERC)
    • Federal Maritime Commission (FMC)
    • Federal Railroad Administration (FRA)
    • Federal Trade Commission (FTC)
    • Food and Drug Administration (FDA)
    • Nuclear Regulatory Commission (NRC)
    • Securities and Exchange Commission (SEC)

    Laws and regulations are attempts at either preventing market failure or, at the very least, reducing the negative effects natural monopolies have on efficiency.

    The topic of market failure will continue in the next lesson. We will examine market failure coming from externalities and how, for example, efficient outcomes for free markets are not always environmentally friendly.


    This page titled 9.3: Market Power- Governmental Options is shared under a not declared license and was authored, remixed, and/or curated by Martin Medeiros.

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