The Banking System Today and Government Monetary Policy
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Based on Porters (2008) article, how is government policy a barrier to entry or an aid to entry into an industry? How does government policy influence the profitability of an industry?
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Solution Summary
This paper discusses the role that the government plays in terms of regulating competition and specifically, the notion of government created monopolies. For example, this paper shows that the purpose of the role of the government, in terms of the market is to preserve competition through antitrust actions; however, the regulatory authority of the government restriciting competition is evident in the banking industry. According to these authors, until the 1970s, the markets that banks could enter were limited by state governments, and as a result, most banks were local commercial and retail bank facilities; however, in the late 1970s, the strategies of banks shifted from simple marketing tactics to mergers and geographic expansion as rivals attempted to expand markets. Today, monetary policy is utilized by the government to maintain equilibrium in the market.
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According to QuickMBA (2010) government can create barriers. For example, according to these authors, although the principle role of the government in a market is to preserve competition through antitrust actions, government also restricts competition through antitrust actions; government also restricts competition through the granting of monopolies and through regulation. According to this site, industries such as utilities are considered natural monopolies because it has been more efficient to have one electric company provide power to a locality than to permit many electric companies to compete in a local market. Thus, to restrain utilities from exploiting this advantage, government permits a monopoly, but regulates the industry. According to these authors, an example illustrative of this kind of barrier to entry is the local cable company; the franchise to a cable provider may be granted by competitive bidding, but once the franchise is awarded by a community a monopoly is created; local governments were not effetive in monitoring price gouging by cable operators, so the federal government has enacted legislation to review and restrict prices.
According to QuickMBA (2010) the regulatory authority of the government in restricting ...
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