The Problem of Price Regulation in Oligopolistic Markets

Categories: EconomyOligopolyPrice

​The main problem of the Oligopoly issue, is that there is only recognition of the market being taken over by a few large firms that are working together to dominate an entire industry.

​When an industry is taken over by a few large firms and has only few sellers, it is called an Oligopoly. These come about when the larger firms change their prices, quantities, and/or qualities of their product and the other larger firms react to those changes. These changes will create a more competitive environment, in which the firms will either merge together or stay put.

In the situation of an oligopoly, the firms choose to merge together. In the event that they do merge together, they merge in one of two ways. One way they can merge together is when one firm merges with another from which it purchases an input or a firm to which it sells its input, known as a vertical merger. The second way firms can merge is when firms that are selling a similar product simply merge together.

When firms merge together via vertical merger, the producers of an industry can agree to set common prices and output quotas to prevent more competition. These are known as cartels. . Examples of oligopolies currently, are Mass media/ news outlets, the music industry, and cell phone service companies. The mass media/news industry are 90% dominated by 6 companies. Those companies are Walt Disney, Time Warner, CBS, Viacom, NBC, and Rupert Murdoch’s News Corporation. The music industry is mainly taken over by Universal Music Group, Sony, BMG, Warner, and EMI group.

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Lastly, the cell phone service is primarily dominated by Verizon, Sprint, AT&T, and T-Mobile. Overall, these companies have either merged together and are sharing the wealth or they are creating competition and generating revenue that way. The prime example of generating competition to generate more revenue is the cell phone service companies. They are always bashing one another and trying to convince people to buy their plans by either making good commercials, or they make their plans better than the other, so the other firms make different plans that are supposedly better. Even though oligopolies exist and they cause damage to the economy, the government tries to keep them in check and tries to regulate them.

​The government has tried to regulate businesses and firms in many ways. The most effective one has to be the Sherman Antitrust Act of 1890. The Sherman Antitrust act ensures to put an effort to “protect consumers from collusive anti-competitive behavior by market participants,” (first citation). The Sherman Antitrust Act mainly focuses on “collusion among two or more business to effect a favorable market position by eliminating some or all competition,” (First citation). Another way that the Antitrust Act helps protect against the oligopolies, is that it outlaws any activities such as, price fixing, bid rigging, and market allocation schemes, and criminalize most forms of monopolization as well. This is good news because it allows the government to criminalize firms that are making money in an essentially illegal way. Most of the time oligopolies get off free of charge, but it’s nice to hear that the government can punish unlawful firms. These regulations do work some of the time but most of the time oligopolies still end up happening. Oligopolies are very powerful in the economy and are hard to stop overall. Once started, monopolies and oligopolies both are almost unstoppable and the government has a hard time making them stop. Other than that, there isn’t much more the government can do besides adding more laws and checks & balances.

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The Problem of Price Regulation in Oligopolistic Markets. (2021, Apr 26). Retrieved from http://studymoose.com/the-problem-of-price-regulation-in-oligopolistic-markets-essay

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