How can governments prevent monopolies?

We’ve established what monopolies are – but how do we stop them?

Governments prevent monopolies and oligopolies by using anti-trust laws in markets. These stop companies from working together to form oligopolies and maintain competition in the market, such as by forcibly restricting the size of the market share that a company can own through the process of deregulation. One such example of this was in the case of the telecommunications company AT&T in the 1970s when it grew so big that it was given complete monopoly status. Although this was a natural monopoly where they did not use any anti-competitive tactics to get to this position of power, it was still unacceptable. It raised the barriers to entry for the telephone industry, which prevented any other new businesses from succeeding in the market. To solve this, in 1974, the Department of Justice filed an anti-trust lawsuit against the company in the most prominent corporate breakup ever, leading to AT&T dissolving into seven regional companies and allowing other businesses like Sprint and  MCI to enter the market. Monopolies are prevented by horizontal integration, where companies merge with other companies that sell similar products, such as if Coca Cola were to merge with Pepsi Co. As a result, they can remove competitors and increase their market share in one fell swoop, so all mergers must be approved by a government agency. There is not as much scrutiny on vertical integration as it allows companies to increase sustainability by owning the rest of the transportation and supply chain.

However, the government still needs to be cautious to avoid letting companies control the supply of a particular good. The exploitation of vertical integration was highlighted in the late 1980s when De Beers had a 90% diamond market share. They owned the world’s diamond mines in a monopoly that prevented other businesses from accessing most of Earth’s diamond reserves.

Although monopolies force other companies out of business and could lead to price gouging, they are not inherently evil and are necessary for specific situations. For example, the National Health Service in the UK, or the NHS, holds a monopoly on healthcare across England, Scotland, Wales, and Northern Ireland, with near-complete ownership of market shares. Their only competition is private hospitals that treat fewer people but charge large, expensive medical bills for high-quality treatment. In contrast, the NHS caters to the rest of the UK’s population for no cost on most treatments and low prices on other more specialised surgeries. There are also monopolies in sectors like energy production, with the National Grid providing electricity for the entire UK. This is required to stop price gouging by an oligopoly of energy companies that could unfairly and excessively raise the price of such a vital resource to today’s modern society. It also prevents the waste of land and money, because if four competing energy companies wanted to provide electricity for a particular area, they are not going to share the same infrastructure, and so would require four different sets of electricity-producing power plants, four sets of power grids and four lanes of wires to transport the electricity, which would take up a massive proportion of the land and clutter the city and its surrounding area. It will also increase pollution in the area if the power plants use fossil fuels, which can cause global warming and acid rain, which would further damage the environment and affect local activities like farming and fishing, which the residents of that area could be dependent on either for simply surviving or for their livelihood or even both. Global warming would also increase the frequency and severity of extreme weather events, which in the UK would mean more storms and floods that would disrupt lives across the UK and cost millions in economic damage to infrastructure, as well as the acquired social costs. In other countries such as southern regions of the United States of America, such as Texas, which have much warmer and drier weather in arid conditions, could experience longer and harsher periods of droughts as well as more powerful and devastating wildfires, which would again cause millions in economic damage as well as destroy the habitats of a vast amount of wildlife, displacing them and pushing many local unique species to near extinction.


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