Government Regulation Of Monopolies In The 1800's

The rise of the railroad industry in the mid 1800’s made for the grounds of a monopoly taking place. This fear of a railroad monopoly caused the first antitrust policy in 1890 to be enacted (“Government Regulation of Monopolies”). Putting in place this antitrust policy set off generations of debate about the government’s role with monopolies. Governments currently regulate and prevent monopolies and rightfully so but there is still an opposition to government intervention even in monopolies. In a free market society, which needs to be further defined, valid points are made on both sides of whether or not government should regulate monopolies. However, a stronger case is made to supporting the side of government regulation of monopolies in

a free market society. Governments need to regulate and do regulate monopolies for this five reasons explained by Pettinger (n.d.): “prevent excess price, quality of service, monopsony power, promote competition and natural monopolies.”
Every institution and every person in the world has certain responsibilities and the government is no exception. In a free market government has the responsibility of,
keep[ing] the peace, protect[ing] private property, and enforc[ing] contracts. Government must do these things effectively, and it must do nothing else; otherwise, the conditions absolutely necessary to genuine personal freedom in society are absent (Petro, 1959)
The government has clear, outlined guidelines for what it is supposed to do. Petro believes that the constitution commissions the government to act a certain way in certain situations. If conditions arise that produce violence or threaten peace, the government is to step in and delegate harmony. The government is to set up laws that protect people and enforce peace and also protect private property. People have a right to possess materialistic items and it is the job of government protect the property of its citizens by setting up rules that do so. Lastly, the government is to enforce all the contracts and regulations it sets up. By doing all these requirements freedom will prosper. Another contract the American government must enforce is the contract of a free market society. A free market society is, “an economic system in which prices and wages are determined by unrestricted competition between businesses, without government regulation or fear of monopolies,” (Free Market). The economic system that was adopted is to be readily observed by the US government. Everyone has responsibility and the United States government is to protect its people and economic system.
To fully indulge in supporting the side of government regulation of monopolies, the opposition must first be explained. One of the points to oppose government regulation is best explained by professor Kiesling (2012) saying that the government needs not to regulate monopolies because the markets will regulate themselves. She explains that there are three aspects of the market that will help regulate monopolies, “Consumer demand, the availability of substitutes, and the entry, or threat of entry, of new firms,” (Kiesling, 2012). Essentially, the argument is putting complete faith in the free market to hold monopolies accountable. The argument against regulation recognizes the calamity monopolies threaten. To put your faith in a system that is not guaranteed to regulate the monopoly is foolish. It is better to have a guaranteed system put in place through government to regulate these monopolies. Another argument against government regulation is one presented by Stigler (2008) in which he sums his case up with, “the declining support for antitrust policy has been due to the often objectionable uses to which that policy has been put.” He goes on to explain that antitrust policies are actually becoming a hindrance to companies. He says that it prevents companies from merging and prevents rivalry among companies (Stigler, 2008). His point against government regulation because certain mergers cannot happen is futile. Certain mergers would create a monopolistic company and limit rivalry among the industry. Those mergers being prevented are doing the job of the antitrust law and not some objectionable use. The claim that antitrust laws prevent entry or competition is just nonsense because antitrust laws limit the growth of companies who threaten to take over the whole entire trade. By limiting that growth more competition of smaller companies and even entry into the trade is made easier. Now that the opposing side has been explored and explained, the supporting side of government regulation of monopolies can be further explained.
Governments currently regulate monopolies and to support the continuation of the regulation it is critical to know why there is regulation to begin with. One reason why monopolies are regulated is best clarified by Pettinger (n.d.), to “prevent excess price. Without government regulation, monopolies could put prices above. This would lead to allocative inefficiency and a decline in consumer welfare.” Monopolies with full control of a particular product or service can charge extremely high and unfair prices. When competition fails to keep prices fair is when the government should step in to regulate the price and keep the price at market value. In essence the government would act as a placebo competitor to prevent the unfair rise in prices. The government has a job to protect its citizens from abuse and corruption. Although monopolies are not necessarily abusive and corruptive, if monopolies choose to they can exercise this abusive power of raising prices. People would be forced to go into debt to pay for this product because there is no other place they can get it. That is why the government should regulate monopolies to prevent them from becoming corrupt and increasing prices to the point where it would hurt the society as whole. Governments should regulate monopolies to prevent unjust rise in prices.
Another reason why governments regulate monopolies is because of, “quality of service. If a firm has a monopoly over the provision of a particular service, it may have little incentive to offer a good quality service. Government regulation can ensure the firm meets minimum standards of service,” (Pettinger, n.d.). The price would remain the same, if not higher, but quality would go down because there are no other competitors to hold the company accountable. That is when the government needs to step in and demand the company have their product or service up to their previous higher quality. The reason this is unfair is because before the monopoly took place, consumers were paying for a certain quality product at a market set fair price. Well, with a monopoly consumers now are paying more for a lesser quality service and consumers are unfairly being taken advantage of. What the government can do is break up that monopoly so that many companies can compete against each other or what Pettinger (n.d.) suggested and require a certain standard of quality. Again the reason the government should step in is because people are left helpless. If they need that service then they are forced to accept whatever the company gives. Maybe the market will fix the monopoly but there is a great chance that will take some time or not happen at all. For that is the reason the government should step in and regulate or break up monopoles to ensure a good quality at a fair price.
The government regulates monopolies to prevention monopsony power which is best described as, “A firm with monopoly selling power may also be in a position to exploit monopsony buying power.

For example, supermarkets may use their dominant market position to squeeze profit margins of farmers,” (Pettinger, n.d.). In this example, farmers have nowhere else to go and sell their product but to the monopoly. Therefore, the monopoly knowing this, can refuse to buy the product of the farmer unless it is at an extremely low and unreasonable price. The farmer will then be put in financial turmoil because of the corruptive behavior that monopoly is exerting. When this abusive behavior is observed by monopolistic companies it should be the job of the government to protect the suppliers from this. Consumers are clearly not the only ones that can be negatively impacted by the abusive power of monopolies but suppliers as well. These suppliers cannot sit around, fingers crossed that the market will fix itself by someone jumping in and being a competitor to this industry as them and their families go more into debt and turmoil. That is the reason why the government should fulfill its task of being for the people and protecting these suppliers from the monopoly

monopsony.
The government should seek to, “promote competition.

In some industries, it is possible to encourage competition, and therefore there will be less need for government regulation.” When competition is endorsed and encouraged there becomes less need for regulation because then the market does hold other industries accountable and prices are kept low, quality is high and both are fair. This is the whole concept of a free market and should be one of the biggest purposes of the government’s economic agenda. Promoting a free market however can include breaking up monopolies or regulating monopolies. Ultimately, the government should stay out of the workings of the free market as the definition says, “without government regulation or fear of monopolies,” (Free Market). The government should not intervene with the free market but simply promote the idea and encourage the process so that way the market can be completely free and most efficient. However, the free market is also a place that is to be without fear of monopolies. This means monopolies should either not exist or not be a threat and either way that requires government authority to regulate the potentially dangerous monopolies. If no monopolies exist or persist then the government should sit back and only promote competition as its economic

policy.
Some monopolies cannot be prevented and are known as, “natural monopolies. Some industries are natural monopolies – due to high economies of scale, the most efficient number of firms is one. Therefore, we cannot encourage competition and it is essential to regulate the firm to prevent the abuse of monopoly power,” (Pettinger, n.d.). When these monopolies form the government should be responsible for the protection of consumers which would be consistent with regulating that monopoly. An example of one of these natural monopolies is natural gas. Homeowners have access to only one natural gas company in their area making that company a monopoly. Nowadays people need natural gas for survival in their homes and places of residence. Without the role of government these natural gas companies could take advantage of the helpless consumer and force them to pay extraordinary prices for this necessity. The companies could also limit the amount a gas a household can take in which could cause problem for the consumer. These natural monopolies are inevitable and is therefore an enormous motive as to why there should be government regulation of monopolies. As of now the government protects its citizens from these monopolies by setting the price and ensuring they follow and obey certain rules. There is no downside to the government actually doing its job and protecting the people from the potential abusive influence of natural monopolies and is why government regulation is indeed right.
Monopolies are very dangerous to consumers and citizens because of the influence and power they can abuse. It is imperative that government regulation is supported for this key five reasons that regulation of monopolies prevents excesses prices, controls quality, stops monopsony power, promotes competition and controls natural monopolies. There is no doubt that this five reasons beg for regulation and prevention of monopoly of governments. If the opposition of monopoly regulation grows then the people, or consumers, will be in danger of abusive and corrupt monopolies controlling an industry that demands high prices and gives low quality. One could say that the market will take care of the problem and maybe it would but it would take a while. Would you rather have the slow moving market fix the problem or demand immediate attention to an apparent problem through government action? The problem with monopolies all began with the fast growing railroad industry and concerned citizens rightfully urged the government to put in place antitrust laws (“Government Regulation of Monopolies”). It is our duty as citizens to continue in that mentality and implore government regulation of monopolies.