Introduction and Objective
A monopoly can be defined as an organization or business which maintains an exclusive supply of a particular product or service. Monopolies usually evolve naturally based on the nature of the market and the industry. Monopolies can create several problems for the economy. An organization or business that has an exclusive share of the market can result in higher pricing and eradicate the competition. In order to reduce some of the disadvantages, there is a concern regarding the regulation of monopolies. However, regulation of monopolies can result in several negative effects such as reduction of innovation. This raises the question of whether monopolies should be regulated or not. Monopolies should be regulated to prevent excessive market power, avoid economic challenges, and to protect the interests of consumers and society.
Literature Review
Regulations of monopolies can be undertaken in order to protect the interest of consumers. Monopolies which have market power can set the prices to be higher than that of competitive markets. Monopolies can be the sole supplier of a product , and consumers will suffer from high prices regarding the products or services. Additionally, this can result in several other negative effects such as allocative inefficiency and a decline in consumer welfare. The government can strive to regulate the heavy pricing of monopolies through the use of price capping. Price capping will involve having a standard price for a particular set of products.
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Regulation of monopolies can stop economic warfare that occur a s a result of monopolies in the market. Zeuthen (2018) analyzed the impact of monopolies in the economy and showed that it resulted in economic warfare. Monopolies left unregulated would result in economic warfare with a general problem of pricing. The study by Zeuthen (2018) examines absolute and limited monopolies and looks at cases of monopolies that have two or three enterprises and organizations. The study established that these companies would have absolute market power. The power will be reflected in the pricing of goods and supply of products. Without regulation, companies may abuse their power by decreasing the supply of products and increasing prices. Regulation of monopolies is a way to ensure that companies do not abuse market power.
The regulation of monopolies should be done for the benefit of consumers and the economy. Monopolies usually reduce the economic wealth of a society. Monopolies that have absolute power on the market can decrease supply and set prices that maximize their profits at the expense of the consumer, the society, and the economy. Monopolies have an imperfect completion which cr eates a deadweight loss and the economy would produce less. Allocative efficiency of products is also reduced when monopolies are not regulated. This would occur because monopolies would not produce the desired products. Monopolies would also not produce products in the desired production quantity or the desired quality. Monopolies thus run the risk of producing goods that may not be desirable for society because they do not have to worry about competition. There will be another company that produces a more desirable or better product and could possibly take the market share away from the monopoly. Regulation of monopolies should be done to remove all these disadvantages.
The other side of the argument considers several reasons why monopolies should not be regulated. One of the negative aspects of regulating monopolies is that price caps would reduce the profit motives that lure investors. One of the strategies to regulate monopolies is to put price caps on certain products. Product pricing is a difficult proces s, and if the price cap is too low, it may reduce profit motives that usually lures investors and innovators that come to compete with the monopoly. This can hinder and reduce the process of innovation and development of a particular product.
Regulation of monopolies can result in a negative impact on innovation. Blind (2016) analyzed how regulation can affect innovation. The study shows that the majority of regulations are not geared towards promoting innovation but usually try to achieve other objectives , and this can create innovation pressures for companies. Regulations can create challenging innovation objectives such as protection of health and safety environments and companies that comply with the objectives may become largely limited as they try to have new innovations and new products. Regulations can thus influence the strategies and activities for companies and create a burden for the innovation activity.
The other argument against regulation is that it undermines the principle of freedom that has been outlined in the constitution. Regulation of monopolies is a way for the government to control big businesses, and this may interfere with the freedom of the company, business, or organization. While the freedom of the monopoly is limited by regulations, the regulations strive to preserve competition in the market and to protect the freedom of smaller companies that enter the market. In case a company controls a significant market share, other small groups may never be able to enter the market and flourish.
Analysis
From the above literature review, the regulation of monopolies should be done to realize several advantages. One of the advantages of regulation is that it creates a free market system and this will provide powerful restraints against any company abusing its customers and competitors. Regulation of monopolies should be done to create a free market that involves a free entry, the competition of substitutes, and foreign competition. Free entry will ensure that another entity will find it attractive to enter the market in case consumers are unhappy with their current supplier. Competition of substitutes occurs when there is a variety of goods and a reasonable substitute. Regulations will ensure foreign competition by allowing opening of borders and making provisions for new competitors that can provide better products at better prices.
The counter-argument against regulation of m onopolies is that it can result in a hindrance of innovation as regulations limit the profit potential of products and some regulations can hinder product development. Regulations such as price caps should thus be done after careful analysis of the market. Additionally, legal regulations should be well analyzed so as not to hinder innovation. Regulations that are put in place after a careful study and analysis of the market will help in improving innovation. Regulation will introduce new entrants and competitors and this creates a need for innovation so that companies can stay above the competition. Proper price caps will also ensure that companies can realize a sufficient amount of profit so as to innovate and improve on their products.
Summary and Conclusion
The research question focused on whether monopolies should be regulated or not. The literature review and analysis show that monopolies should be regulated. One of the advantages of regulation is that it stops monopolies from having excessive market power and creating economic challenges. Regulation will hinder economic warfare as companies that have a monopoly on products may limit supply or products and raise prices. Regulation of monopolies should also be done to protect the interest of consumers and society. Counterarguments note that regulation can hinder innovation and it limits the freedom put by the constitution. However, proper regulation should promote innovation, ensure freedom of entry of small companies and create a favorable competitive environment.
References
Blind, K. (2016). 15. The impact of regulation on innovation. Handbook of Innovation Policy Impact , 450 .
Zeuthen, F. (2018). Problems of Monopoly and Economic Warfare . Routledge.
