Government Intervention to Correct Market Failure from Monopoly Power

Evaluate Advantages and Disadvantages of Various Methods of Government Intervention to Correct Market Failure Arising From Monopoly Power
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Introduction
Market powers and market failures are detrimental to the economy. First, market powers lead to undesirable escalation of the market price. This reduces the desire for products and amenities, thus causing undue economic difficulty. Second, market collapse induces an in effectual distribution of the rare assets. The market is incapable of regulating the abuse of the monopoly influences. Besides, market debacles contribute to an inadequate supply of goods, thus leaving the infinite human wants ungratified. It also deters the establishment of markets, and creates market insecurities (Hamel et al 2015).
The authority formulates policies to control market influences and debacles. Also, the government strategies facilitate the establishment of fresh businesses in the country. The dominations generate an inflexible demand loop, thus limiting the quantity of goods available and producing excessive burden to the country’s budget. This paper explores the advantages and disadvantages of various government policies enacted to rectify market failures due to the monopoly powers. It explains three government interventions, and discusses each concept, examples, strengths and weaknesses of the three regulations.
Market power is a state where a company escalates the market fees of its items to maximize the income above the minimal expenses. It occurs in circumstances where a dominant business organization enjoys monopoly supremacy. On the other hand, deadweight loss refers to an economic inefficiency due to unrealistic and imbalanced market situation. There is an unproductive distribution of properties and facilities in the market failures. These economic conditions decrease the public wellbeing (Hamel et al 2015).
2.1. The Price Capping Act
The government of the United Kingdom has formulated a law to avert the misuse of the market dominance in the cases of a normal monopoly or extraordinary entrance obstacle. This policy is geared towards price decrease, and deterring a great rate of the value limits. The price capping compels the monopoly businesses to implement fees that are lower than the revenue exploiting charges. For instance, the United Kingdom utilizes the retail price index less the predictable efficacy savings formulation (Crampes, &Laffont, 2016).
2.1.1 Analysis of the Price Capping Act
The government has established price-monitoring organizations to regulate the water and energy sectors in the country. These corporations apply the retail price index minus the predictable efficiency, saving criteria to curb the unnecessary price upsurges. A company can raise the prevailing market price by subtracting the expected quantity of price from the existing inflation rate. That is, subtracting 1 percent from 3 percent if the inflation rate is 3% and the predictable efficacy saving is 1%. Consequently, the company will increase the real fee by 2 percent, according to this act (Crampes, &Laffont, 2016).
Additionally, the supervisory organization can set a high efficacy saving value when the monopolist is able to achieve the expect...