Some actions that the government can take to control and reduce the market power of monopolistic and oligopolistic firms are price regulation, breaking up large firms, increasing transparency, providing subsidies, imposing antitrust laws and taxes, and creating public options. For example, the government can regulate specific prices and services to protect consumers from monopoly firms charging excessively high costs or fees. This type of regulation is typically defined as price-gouging laws (Jeffrey M Perloff, 2018). By setting the price regulations, the government can ensure that monopolies do not charge consumers unfairly high prices. In addition, the government uses the same law to protect consumers from monopoly markets that relentlessly abuse their market power to increase costs at an unreasonable rate. By controlling the market power, monopoly firms maximize their profits by setting the price and output so that the marginal revenue equals the marginal costs. MR=MC.

      The government can also break up large monopolies into smaller firms to stimulate market competition and reduce market power. The government’s intervention is referred to as antitrust laws or anti-monopolistic. By breaking up the power of monopolies, the government can introduce competition into the market and minimize the monopolistic market power of a firm. For instance, during natural disasters, the government introduces policies that can help protect consumers from unfair pricing and other anti-competitive practices in the markets. For example, during the COVID-19 outbreak, Pfizer and Moderna dominated the market because they were the only pharmaceutical firms producing vaccines. This gave them the power to control the price of vaccines in the markets.

       On the other hand, the government can create public options to provide consumers with an alternative to monopolies. These public options are government-provided services or products that are competitive with private firms in the markets. Therefore, consumers ought to choose from public options alternative over private firms’ products to minimize market monopolization (Jeffrey M Perloff, 2018). In addition, this government intervention can protect consumers from the high price set by monopolistic firms. Also, the government can require monopolies to be more transparent about their pricing and operations to make it easier for consumers to make informed decisions. It is the role of the government to make sure that consumers are aware of the prices they are paying for the products.

      For Oligopolies, the antitrust laws enacted by the US Congress are a set of regulations that prevent firms from forming cartels and engaging in Oligopolies practices. The antitrust laws are designed to protect consumers from unfair firms’ practices, and the goal is to promote competition that leads to lower prices, high-quality products, and more choices for consumers. These regulations reduce the market power of oligopolies by making it hard for them to scheme and raise market prices. (Louis B. Schwartz. 2022). To prevent market power, government agencies can regulate prices in oligopolies to prevent firms from charging high fees to consumers by imposing legally limited price ceilings. They can also limit mergers and acquisitions to avoid oligopolies’ market power. The regulations can be in the form of antitrust laws or sometimes specific rules that limit the size and scope of firms in oligopolistic markets.

        In general, I agree that the government has some power to control the setting of prices or profit-maximization output levels for private firms. For example, the government uses price regulations to ensure that prices remain fair so that firms do not exploit their market power by charging unnecessary prices. Moreover, the government can impose taxes on goods and services to discourage their consumption and promote the consumption of other products. It also uses subsidies and other economic incentives to influence private firms’ prices and profit-maximization output level. Overall, as mentioned at the beginning of this paper, the government has some power to regulate markets and ensure that market forces operate in fair and competitive practice.

References

Jeffrey M Perloff (2018). Microeconomics theory. 8^th edition. Pearson education.

Louis B. Schwartz. (2022). New Approaches to the Control of Oligopoly. University of Pennsylvania law review.https://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=6929&context=penn_law_review