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Government Can Prevent Monopolies

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Discuss and (if appropriate) take positions on the following in the topic area of "Can governments effectively prevent the formulation of monopolies or unfair practices of large corporations. The case of Microsoft":

1. Current theories, explanations, proposed relationships among constructs, and absence of theories about meaningful phenomena in your topic area.
2. Contradictions, inconsistencies, and ambiguities regarding findings related to theories in your topic area.

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The response provides you a structured explanation of issues and debates related to "Can Governments effectively prevent the formulation of monopolies or unfair practices of large corporations. The case of Microsoft" . It also gives you the relevant references.

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The current theories and explanations show that monopoly can be controlled by the government through policies and laws. Literature is scant in pointing out that specific taxes can control monopoly (1). For example commodity taxes such as excise duty and sales tax can be used to control monopoly. The impact of specific taxes is that output sold reduces, profit of the monopoly reduces, and if the demand is elastic the monopolist will not be able to shift the major burden of per unit tax to the consumers. Alternately, the government can impose a lump sum tax such as license fee or profit tax on monopolist(2). The attractiveness of a lump sum tax is that the incidence of such a tax is entirely on the monopolist and is not passed on to the consumers. In this case the output remains unchanged, price remains unchanged, and the profit is reduced(3). Essentially such a tax makes monopoly less attractive. Another pricing strategy that the government can use is the marginal cost pricing or regulated pricing. This strategy is used by government in public utilities such as water supply, power supply, passenger transport, communications, and railway facility(4). These are made available to the society at reasonable prices. The price ceilings in case of such monopolies are not too low from monopoly price. The consumer is protected from having to pay high monopoly prices.

The government can control monopoly through legislation. The key laws in the US are the Sherman Act 1890, the Clayton Act 1914 and the Federal Trade Commission Act 1914. These laws restrict the formation of cartels, ban collusive practices that restraint trade, they forbid mergers/acquisitions that can lower competition, and they forbid the formation of monopolies/abusive monopoly power. However, these laws need modifications because the nature of industry has changed. The government should enact new laws that address industries such as professional sport, media, utilities, health care, insurance, banks, and financial markets. These laws also do not address actions such as employees or consumers taking collective action. Further, it does not address situations where monopoly power is exercised by a single buyer. This phenomenon is seen in the retail sector. Another sector where anti-trust legislation is required is professional sport leagues. The current laws exempt joint agreements and mergers in basketball, football, baseball, and hockey leagues. There are also exemptions for newspapers and immunity under the Newspaper Perseveration Act of 1970.

The government can prevent monopolies or unfair practices by corporations in several ...

Solution provided by:
Hatim Baxamusa, MBA
Education
  • BSc , University of Calcutta
  • MBA, Eastern Institute for Integrated Learning in Management
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