Government Intervention, Market Failure, Monopoly Power

Monopoly Power and Government Intervention
1. Introduction
One of the reasons for the formation of monopolies is the case where a certain organization has exclusive ownership of a rare resource. Monopolies are also formed in cases where the government accords an organization monopoly status. Monopolies are also formed when producers have patents over designs or have copyright over designs or in the event where two competing companies form a merger. This paper examines how monopoly power can be controlled through governmental intervention. The paper objective will be attained through a critical discussion of the various theories on monopoly power.
The paper is divided in to three sections. Section one gives a brief synopsis of the issue and the objectives of the paper. The second part of the paper discusses the various monopoly theories in existence and the application of each theory in regulating the market. Section 2 will also give the advantages and disadvantages of each theory and examine the different governmental interventions in existence. The last section gives a brief conclusion of the theories discussed in the paper.
2:0 Governmental Interventions
2.1 Theories about Monopoly Power
The social and financial risks of monopolies are clear. To deal with the impacts of the large institutions, the government has taken steps, using both laws and court rulings, to regulate monopolies. Though the approaches have been diverse, the objective of curbing market domination has been invariable. One of the questions that have emerged in regards to government regulation is why the need for regulation in a free economy. There are various theories that explain why the government finds the need to regulate firms and each of them is geared towards protecting the consumer from unfair competition. The theories that will be discussed in this section are;
Market failure
Dead weight loss (DWL)
Consumer surplus
Product surplus and,
Societal welfare
2.1.1 Market Failure
Market failure refers to a situation where free markets lack the ability to develop or when they are unable to allocate the available resources effectively. In such cases, the government steps in to safeguard the consumer from the negative effect of the market failure (Dreze, Hoch, & Purk, 2004). Market failure can be either partial or complete. Complete market failure is brought about by the inability of the free market to distribute scarce resources to completely satisfy a need or a want. This is brought about by the absence of incentives that can encourage firms that are in need of profits to enter a particular market (Feldstein, 2008). This is mostly in the area of providing public goods such as street lighting where despite the need, private individuals would not be willing to pay. The absence of someone to pay means that there would be no revenue collection and as such, private companies would be reluctant to provide the service (Hugues & Frederic, 2012).
2.1.2 Deadweight Loss
The result of a competitive market has a very significant property. When at equilibrium, all profits from business are realized. This implies that there is no extra surplus to get from extra dealings between buyers and sellers. When this happens, the a...