Microeconomics: Theory and Applications with Calculus, 4e

11.5 Government Actions That Reduce Market Power

Some governments act to reduce or eliminate monopolies’ market power. Many governments directly regulate monopolies, especially those created by the government, such as public utilities. Most Western countries have designed laws to prevent a firm from driving other firms out of the market so as to monopolize it. A government may destroy a monopoly by breaking it up into smaller, independent firms (as the government did with Alcoa, the former aluminum monopoly).

Regulating Monopolies

Governments limit monopolies’ market power in various ways. For example, most utilities are subject to direct regulation. Today, the most commonly used approach to regulating monopoly pricing is to impose a price ceiling, ...