How do governments regulate monopolies?


Quick Answer

Governments regulate monopolies by capping prices, controlling quality, investigating mergers and reserving the right to break up a monopoly. Governments in various countries around the world have enacted slightly different laws and policies to regulate monopolies.

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Full Answer

Governments can create regulatory bodies that limit price increases. Such policies are intended to reduce unfair business practices. Monopolies can charge unreasonably high prices for their products and services, making it so that some consumers cannot afford to purchase those offerings. If the monopoly sells an essential good or service, its refusal to lower prices can prove detrimental to consumers and possibly impoverish a region. The purpose of price caps is to prevent monopolies from refusing to deliver important products and services to certain areas.

Policymakers can examine the quality of products and services a monopoly provides to make sure it is meeting industry standards. Regulators can investigate actions that suggest monopolies are practicing price fixing, predatory pricing or market segmentation. These three schemes are major concerns for governments, so regulators can break up a monopoly if it abuses its power by entering into any of these activities.

Each government decides how it treats violators. In the United States, monopolies that violate anti-trust laws are criminally responsible. The Sherman Act makes monopolization or attempts to monopolize a trade a felony, and violators can be punished by fine or imprisonment. However, in China, violators of such provisions are subject to administrative penalties. In addition, Chinese companies that cooperate in anti-monopoly law enforcement investigations can face lower penalties.

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