Competition Regulation Essay

Pages: 3 (1022 words)  ·  Bibliography Sources: 1  ·  File: .docx  ·  Level: College Senior  ·  Topic: Economics

Competition

Regulation and competition: An overview of existing market structures

Broadly speaking, three basic market structures exist within most capitalist economies: monopolies, oligopolies, and perfectly competitive markets. In the case of a monopoly, a single industry dominates the marketplace. The government may use industrial regulation to control a monopoly if it is inefficient to have competition within the industry, as in the case of utilities such as electricity. The government usually heavily regulates legal monopolies to prevent prices going stratospherically high for consumers. The government may also permit an oligopoly to exist, when only a few firms exist within the industry, giving the firms a high degree of control over their prices unless the government regulates the companies (Economics basics: Monopolies, oligopolies, and perfect competition, 2010, Investopedia). High barriers to entry, such as large economic costs to enter the field, the need to make use of large economies of scale, or legal controls (such as drug patents) can foster an environment that gives rise to monopolies and oligopolies. In contrast, perfectly competitive markets are characterized low barriers to entry, many easily available substitutes, and a great deal of consumer power. These goods and services are often not subjects of industrial regulation, given that competition keeps prices low.Get full Download Microsoft Word File access
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Essay on Competition Regulation and Competition: An Overview of Assignment

The government does not only regulate entities for economic reasons. It also regulates entities for social reasons, to protect consumers against unsafe products. For example, the Food and Drug Administration (FDA) evaluates the safety and effectiveness of pharmaceuticals; the Federal Transportation Authority (FTA) ensures that cars are safe. Consumers seldom have the purchasing power or knowledge to use their dollars to pressure companies with a financial interest in increasing sales to produce safe products. Environmental regulation is another example of a social regulatory pressure. Consumers often buy the cheapest and least expensive products, even if they are not environmentally friendly. Unless the government regulates businesses, banning environmentally hazardous pesticides like DDT, for example, or putting carbon emission limits of vehicles, production of such unsafe products would continue unabated.

Another form of social regulation exists within the labor market. When it is a 'buyer's market' for labor -- when companies can pick and choose whom they employ (which is often the case) -- if not regulated by the federal government, employers would be able to exercise unlimited discretion in selecting employees. Based upon an employer's desire to select whoever was 'like them,' in terms of appearance, the hiring manager could engage in discriminatory behavior, rejecting women, minorities, and differently-abled persons. By prohibiting such discrimination, regardless of the state of the labor market, the federal government hopes to create a more just society and protect workers' rights. The federal government also sets a minimum wage, to ensure that workers receive fair compensation for their work, and the price of labor does not sink prohibitively low.

Natural monopolies occur in industries "where there is a high ratio of fixed to variable costs. For example, the fixed costs of establishing a national distribution network for a product might be enormous, but the marginal (variable) cost of supplying extra… [END OF PREVIEW] . . . READ MORE

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https://www.essaytown.com/subjects/paper/competition-regulation/200579.