Government Should Regulate Monopoly (Essay Sample)

Government Should Regulate Monopoly

Section 1: Introduction

Markets in their basic form are often used as an avenue for allocating resources. If the market structure is competitive and well-regulated, it tends to bolster economic growth, enhance consumer welfare, and increase total welfare. Markets may be classified as monopoly, oligopoly, or competitive. A monopoly is a type of market that comprises of one seller and a host of buyers. In this market structure, a seller is the sole producer of a product or a service on offer. Oligopoly is a type of market that plays host to a small number of firms. However, none of these enterprises can prevent the others from asserting their influence in the target market. A competitive segment incorporates a large number of producers who tend to compete against each other with the hope of satisfying the needs and wants of consumers. There is likelihood that monopoly may be a catalyst for deadweight loss if a seller is unable to supply products or services where the marginal cost of the selling price is not equivalent to the demand. Consequently, deadweight loss will manifest itself if consumers have to purchase goods or services at higher prices as opposed to what they would pay in a perfectly competitive market (Textbook Equity Edition, 2014). The resultant effect of deadweight loss is that the economic efficiency of the prevailing market is not at equilibrium. In addition, deadweight loss is harmful to the market because it leads to loss in economic surplus. Using the graph provided in the coursework, it is evident that deadweight loss can be determined using the P=MC equation. Using this equation, it is possible to note that deadweight loss the cause of inefficiency in a monopolized market structure.
The existence of different market structures highlights the role of the government in the regulation of these markets. It is possible for the state to regulate markets through direct or indirect participation. The authorities can choose to employ market-based and traditional instruments in market regulation. Nevertheless, each intervention has its pros and cons. In most cases, it is expected that any form of intervention is likely to attract unforeseen consequences (Tepper, 2018). Overall, although monopolies have manifested themselves in the market, government regulation has taken effect as it seeks to protect the interests of consumers, improve the quality of products or services, prevent the exploitation of monopsony buying power, and promote competition in various industries. Nonetheless, there are certain monopolies such as public, technological and geographic monopolies that should not be subjected to the same level of government regulation.