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Why might government be concerned at the activitites of a monopolist

18 May 2017Government and Law Essays

The government of a state has a contractual binding to provide security and fend for its citizens in return for their civic duties and responsibilities. The Pareto optimality defines an optimal distribution of benefit to the society as the distribution of goods in such a way that no one could be better- off without making anyone else worse – off. So it becomes the responsibilities of government of a state to fashion out policies that would be beneficial to its citizens. Since regulatory function is a key function to government; the control of means of production, especially key industries that constitute the commanding height of the economy, becomes necessary. This is so, in order to make the provision of essential social services such as electricity, seaport services, rail transportation, water provision, etc, adequately distributed among the different strata of the society. This has made some state government to take the monopoly of providing these services by establishing parastatals and other corporations with exclusive monopoly in the provision of such services.

A monopolist is a producer or seller of a particular goods or service with the sole right to operate in this area of the economy sector. Others are by law have no right to venture into this area of operation where this monopolist operates. Thus, the monopolist has control over its output and price. This position him to fix its price at any level that can sometimes be exorbitant and exploitative to the consumers. Also, the output and supply of goods and services can be cut short by the monopolist in order to increase its price and income. Since there is no competition from other competitors, the monopolist tend to be very powerful; the judge in its own case. It becomes necessary that government consistently check and regulate the activities of the monopolist, so as to safeguard the ordinary citizens from excessive exploitation and unnecessary hack in prices. Also, the quality of goods and services provision need to be checked in regular interval so as to make the consumer get the money worth of what they are paying for.

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The above graph shows the monopolist in this production operation has a limited competition. As a result, there is very little competition in this industry . The overarching point though, is that no matter what the source of monopoly power, whether it stems from patents, knowledge or, as in this case, high fixed costs, it is a fact of economic life.

REMEDIAL POLICIES THAT CAN BE CONSIDERED BY THE GOVERNMENT.

In order to check against the negative side associated with the activities of a monopolist, government can adopt other remedial public policies. Among these, is the privatization of government corporations that operate as a monopoly? By privatization, private individual and bodies are given the opportunity to own part or whole of the government company; by buying shares or taking over the operations of some specific function of the corporation.

This is otherwise called concession. The change of management of the monopolist where private management is involved, this makes its operation to be very efficient and the production of better services is ensured.
Another remedial policy government can adopt is the deregulation of the sector in which the monopolist operates. By deregulation, the government is uplifting the ban and giving other organizations or corporate bodies and individual the right to operate along side with the monopolist. Thus, this is a way of removing the exclusive right given to the monopolist. This tends to bring up competition in the industry. And it will make the monopolist not to have total control over its output and its price at the same time.

IS DEADWEIGHT LOSS MODEL INEADEQUATE?

Deadweight loss model concerns the net loss in economic welfare that is caused by a tariff or other source of distortion, defined as the total losses to those who lose, minus the total gains to those who gain. Usually it is identified in a supply-and-demand diagram in terms of change in consumer and producer surplus together with government revenue.

This is usually cost in a scenario where the monopolist has control over price and output and where competition is absent. The model is inadequate on the ground that the monopolist despite its position to increase prices and quantity of output, it can not continue to increase it beyond proportion. This is where government checks on its activities is required.

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