State, Market and Social Policy Essay Example | Topics and Well Written Essays - 3000 words

State, Market and Social Policy - Essay Example At most of part of this paper is the provision of the answer to the question on whether we should be concerned on market failure or government failure. There are inefficiencies brought about by monopolies. One in which is that they can get away with imposing higher non-pecuniary (non-financial) costs on buyers (Lewis and Widerquist 2001). For instance, assuming a small local market for counseling had just one provider of psychotherapy. Clients who went to this provider's office might have to spend long periods in waiting areas. This would have been the time that the clients could have spent engaging in other valuable activities; as a result their waiting time would be a cost. The therapist might be able to do some things to lessen clients' waits, other than as a monopolist, the therapist faces no viable demands to do any of them. In response to this, Lewis and Widerquist (2001) assert that a government has three things it can do to lessen and improve the inefficiency caused by monopolies. First, it can attempt to promote competition in monopolistic markets through breaking up monopolies or by avoiding them from forming. This is the reason why the United States has antitrust laws. Antitrust laws limit mergers (the joining together of firms in order to create bigger firms) between firms that sell goods in the same market. Moreover, antitrust laws also limit price-fixing between firms in the same market through preventing competing firms from performing as if they were monopolists. Evidently, the U.S. government utilized antitrust laws to break up American Telephone and Telegraph's monopoly on long-distance phone service, and the Justice Department has taken Microsoft to court. Second, governments have the power to decide whether to permit the monopoly to survive but regulate its price. As an application and realization, the U.S. government has employed this solution for phone companies and electricity companies, and local governments on occasion use it for cable television. This preference is frequently used for industries that are supposed to be natural monopolies. For the reason that a group of smaller firms would have a higher cost than one large firm would, breaching up a natural monopoly would not work very well. On the other hand, leaving the natural monopolist alone generally is not a good suggestion since natural monopolies have the same aspiration to get the most out of profit as any other firm, subsequently they will increase prices higher than costs and have the tendency to raise prices well above costs. For instance, one may think that his/her water bill is high now, but how high would your bill have to go before you seriously considered drilli ng a well You would probably let it go quite high (as cited in Lewis and Widerquist 2001). Therefore, if the water company were an unregulated monopolist, it could get away with a very high price. It is not easy for government to determine the right price to tolerate a natural monopolist to charge, and firms that face a regulated price have efficiency problems, but regulation may be the best solution, basing on the options. Lastly, the government may perhaps plainly take the monopoly over and run it itself. The U.S. government