Government May Improve Markets

403 words | 2 page(s)

I feel it essential for the government to step in to limit the formation of monopoly. I strongly think that this should be done to protect the interest of the consumers. If the two organizations are allowed to merge, then, they will be in charge of setting consumer prices. This implies that the prices will hike, and the government will not do not have the ability to control them. Evidently, monopolies have the market power to price commodities higher than the market prices (Newman & Woolgar, 2013). In this view, it is recommended that the Brazilian government should come in and regulate them.

Government involvement will be characterized by pros and cons. Concerning the pros, it is going to prevent excess price. Notably, without government regulations, monopolies could put prices higher than the expected. As a result, there will be allocative inefficiency as well as a decline in consumer welfare (Newman & Woolgar, 2013). Additionally, the quality of service will be maintained if the government will be involved to limit the monopoly. It is vital to state that if Big-Mega would be given the monopoly over the provision of services, it may have fewer incentives to provide high-quality services, something that the government will do if it is involved in limiting the monopoly. Another advantage is found in the monopsony power, whereby if Big-Mega would be provided with the monopoly power, the selling power may also be in a position to exploit monopsony buying power (Newman & Woolgar, 2013). In such cases, equality may not be promoted because only the rich will afford the company’s product.

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The cons of government’s involvement in limiting the monopoly power can be found in the methods it will use to regulate the firm. For example, it applies price capping by regulators RPI-X, it may be very strict, hindering the company from harvesting profits to achieve their goal (The economic, 2015). Besides, some government officials may become soft to the firm and allow them increase prices and make huge profits. This implies that there is the promotion of corruption, and equality of all firms in the same industry will be affected.

The method is also disadvantageous in the sense that if the organization becomes very efficient, the government may penalize it because of demonstrating higher levels of X, making it fail to keep efficiency saving (The economic, 2015). However, I recommend that the government should be involved to limit the monopoly of the firm.

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