Public Policy toward Monopolies: Regulation

When government regulations restrict a monopolist's power, it is termed a regulated monopoly.

Because monopolies can set prices higher than in competitive markets, limiting innovation and hindering economic growth by limiting opportunities for small enterprises, the government may want to control monopolies to safeguard consumers' interests.

The government can regulate monopolies through price capping, merger regulation, breaking up monopolies, investigating cartels and unfair practices, and nationalization, that is, government ownership.

Further, the government creates regulatory bodies by legislative act to set standards in a specific field of activity or operations in the private sector of the economy and then enforce those standards. One such body is the Federal Energy Regulatory Commission, an independent agency that regulates the interstate transmission of electricity, natural gas, and oil in the United States.

The government regulates monopolies to prevent excess prices, maintain quality of service, prevent monopsony power, and promote competition.

This way, the government can regulate the firm to prevent the abuse of monopoly power and ensure that it meets minimum service s