Instructor: Raymond Hudson
July, 16th 2012
The potato chip industry in the Northwest is now running as a monopoly called Wonks. We are going to look at how it affects the government, businesses and consumers, as well as the prices in the market. Furthermore, we will also look at what market structure works best for the Wonks industry.
According to our text reading “monopoly is industry composed of only a firm that produces a product for which there are no close substitutes with significant barriers that exist to prevent the new firms from entering the industry (Case, Fair, Oster, 2009)”. Then a monopolistic competitive industry is a market structure is characterized by a large number of smaller firms.
As for the government they regulate most monopolies in the same way by one or more government agencies. The government can either tax the firm or subsidize the form to influence their prices. At that time the government will undertake in the consumers best regard, “and at other times it will act in the industry’s best interest. An effective regulation finds an equilibrium point between the two (Cvanvolk, 2007)”. Monopolies rest on the government policies in the United States. “The governments support is responsible for fixing agricultural prices above competitive levels, for the exclusive ownership (Stigler, 1988)”.
The governments can also use force to increase control of certain products that are essential to the very survival of the Wonks industry. Government acts in many ways for monopolies to operate. If the government thinks that some aspects of the potato chip industry is unfair they will interfere. There is no way of the government not being involved. They also control price gouging to the consumers, which is a nice thing because it seems like there is enough of that going on already. “The Sherman Antitrust Act reduces the power of many large firms (Mankiw, 2004)”. The government will break them up if they are to large...