Legislation to Regulate Monopoly

Question 1

What is the objective of legislation to protect competition?

Answer 1

Objective: prevent monopolistic behavior by one or group of firms and therefore achieve greater degree of allocative efficiency

Question 2

How do they work?

Answer 2

Guilty firms are either fined or asked to break up into smaller firms

Question 3

What are the 3 difficulties with regards to legislation to protect competition?

Answer 3

1. Laws can be vague
2. Based on normative ideas, and so there is no right or wrong
   
   • different government will have different outlooks
3. Evidence of collusion is hard to find

Question 4

Why are merger legislations required?

Answer 4

Firms can become very large and gain too much market power

Question 5

What are the 3 difficulties with merger legislations?

Answer 5

1. Uncertainties about what firms should be allowed to merge and what shouldn’t
2. Laws can be vague
3. Based on normative ideas, and so there is no right or wrong
   
   • different government will have different outlooks