Elucidate how to maintain competition

Question

Elucidate how to maintain competition?

Answer 1

1. Competition is the market mechanism that encourages producers and resource suppliers to respond to consumer sovereignty.

2. If producers (and/or resource suppliers) have monopoly power, the monopolist can charge higher-than-competitive prices and supplant consumer sovereignty with producer sovereignty (or economic rent).

3. If “natural monopoly” exists, government regulates price and service.  (Natural monopoly exists when technology or economic realities make a monopoly more efficient than competition.)

3. Where competitive markets are more efficient, anti monopoly laws (Sherman Act of 1890; Clayton Act of 1913) are designed to regulate business behavior and promote competition.