Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 5 Firm Behavior and the Organization of Industry
Chapter
15 of 36 Monopoly
Section
30 of 32
…
Government
policymakers can respond to the problem of monopoly in four ways
·1·
try to make monopolized industries more competitive
·2·
regulate behavior of the monopolies
·3·
turn some private monopolies into public enterprises
·4·
do nothing at all
…
·3·
Turn some private monopolies into public enterprises
Rather
than regulating a natural monopoly run by a private firm, the government can
run the monopoly itself.
This
is common in many European countries, where the government owns and operates
utility companies such as water, electric, and telephone.
In the
United States first-class mail delivery is considered a natural monopoly and
the federal government runs the Postal Service as an independent agency.
…
With
natural monopolies economists generally prefer private to public ownership.
Private
owners of a monopoly firm have an incentive to minimize costs as long as they
gain part of the benefit as increased profit.
They
will fire the firm’s managers if they do a bad job of keeping costs down.
…
With
public government ownership of a monopoly firm
If
the government bureaucrats who run the firm do a bad job of controlling costs
they usually keep their jobs and the losers are the customers and taxpayers.
The
bureaucrats and employees of the firm become special-interest groups that
attempt to block cost-reducing reforms.
The
voting booth is less reliable than the profit motive as a way of ensuring
natural monopoly firms control costs and are well run.
…
·4·
Do nothing at all
Each
of the above 1~3 policies aimed at remedying the inefficiencies of monopoly
pricing has drawbacks and limitations.
Some
economists argue it is often best for the government not to act on the problem
of monopoly.
Here
is the assessment of economist George Stigler, winner of the Nobel Prize for
his work in industrial organization:
“A
competitive enterprise economy will produce the largest possible income from a
given stock of resources.
No
real economy meets exact competitive conditions and all economies will fall
short of the ideal economy, the difference results from market failure.
In my view, the degree of market failure
in the American economy is much smaller than the political failure arising from
the imperfections of economic policies found in political systems.”
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