The purpose of this paper is to investigate a recent case of anti-trust investigation while applying concepts such as monopoly and oligopoly market structure. In connection to this, an article by Ian Young, “EU Plans Antitrust Crackdown on Malfunctioning Energy Markets ” was…
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The companies have preserved their dominant positions through vertical integration and control of distribution infrastructure (Ian, 2006). This limits the amount of wholesale trade and consequently, markets become illiquid. There is also no transparency in the pricing process. New entrants face many difficulties and, therefore; there is no competition inn the market, thus inefficiency. Antitrust behavior is associated with a cost of inefficiency. When there are few players in the market, they form collusions and control prices in the market, as have happened in the oil and gas market. Due to lack of competition, the firms have no incentive for development and this leads to inefficiency (Schmalensee, 1979). The firms, being price makers, exploit consumers by charging high prices and this discourages consumption. The dominant firms set high barriers of entry, and this discourages investment in the oil and gas business which is at the expense of development. Under perfect competition, profits are maximized at the point where the firm’s marginal costs equal its marginal revenue. There is high market power encourages rent seeking behavior that discourages investment. However, for the case of monopolies and oligopolies, there is imperfect competition and this results to supernormal profits. These economic profits attract new investors into the market, but there are barriers to entry (Washington, 2011). Under perfect competition, the market decreases as prices increase. However, monopolies and oligopolies violate this rule since their increase in prices does not affect the quantity demanded. The firms were investigated under the three antitrust laws that are: Sherman Act, Clayton Act and the Federal Trade Commission Act.
However, oligopolies and monopolies are not always bad for societies. Oligopolies and monopolies earn many profits. This enables them to be in a position to use
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