How to Control Monopolies? (6 Measures) | Markets | Economics

Monopoly is always in an advantageous position to fix the price of a commodity in a way it likes another exploit the society. It is very essential that the society should be saved from exploitation. This can be done only when the state interferes and for this some measures are always taken by the state.

Some of important measures are:

1. Anti Trust Legislation:

One of the measures which is adopted by the monopoly is to form trusts. These trusts are of course voluntary, but all the evils of monopoly more or less creep into it, with the result that the State is forced to take legislative measures.

In 1890 in the USA, Sherman Anti Trust Law was passed. Similarly in 1914 Olayton Anti Trust Law was passed. But many a time monopolists are very active. They try to undo the work of the state by either combining in another form or by reaching some informal understanding.

2. Control over Prices:

Monopoly will always try to fix the highest possible price which it can obtain from the customers, so as to earn minimum profit. The state can control the monopoly by fixing the profits and the prices and ensure that the industry does not earn undue profit. But it is also not very effective and cannot be put into actual practice.

We know that it is very difficult to determine the cost of production, because the monopoly will never give a correct picture. Similarly, it will also not like to leak out trade secrets. Then it is also difficult to have some margin of profit uniformly for all commodities, all over the country.

3. Organised Consumer’s Associations:

The monopoly fixes high prices because it knows it fully well that the consumer is not well organised and will take time to organise himself and till then suffer. One effective method of checking and controlling monopoly is that the Government should help in the formation of consumers associations.

It should give them some reasonable powers and patronage. It should be vested with the responsibility of bringing to the notice of the Government on the one hand and the society on the other, high handedness of the monopoly. But this proposal too is complex and complicated.

The monopoly will always try to see that the consumers associations are not formed. They will always try to put many hurdles on the way, even if the association comes up, the monopoly will see that it is not forceful arid powerful. Then another difficulty is that the consumers are spread all over the country and it is usually very difficult to bring them nearer and closer to each other and that too in an effective manner.

4. Effective Publicity:

Monopoly works with some serious irregularities, which usually do not come to the notice of the people. It is therefore, desirable that proper publicity should be given to these defects. There should be provision for public supervision of monopoly houses.

In the words of Prof. Pigou, “Under any form of state control over private monopoly a considerable gap between the ideal and the actual is likely to remain. The method of control whether positive or negative is in short, an exceedingly imperfect means of approximating industry towards the price level and output proper to simple competition. Moreover, it is apt to prove a costly method.”

5. Creating Fair Competitions:

Monopoly can continue only as long as there is no real competition. This competition must be effective, if monopoly conditions are to be checked. But the difficulty is that the monopoly will never allow any competition, because that will mean sharing in profits on the one hand and check on arbitrary fixation of prices on the other.

Monopoly check competition in more than one way e.g.:

(a) It will see that those who come in competition are discouraged. Their resources of supply are cut, and the suppliers are bribed and so on.

(b) When the rivals come in the market, the prices of the commodity are drastically reduced in the name of efficiency and economic production and for benefiting the consumers; this will force the newly emerging competitors to go out of the market.

(c) The monopoly will try to set up new firms to compete the new rival at all levels. The firms will be allowed to suffer losses for sometime. These will be wound up only after the competitor has gone out of the market.

(d) The suppliers of raw material, distributors and dealers will be given better terms for sometime.

In this way the monopoly will make every effort to see that competitor goes out of the market.

6. Nationalisation:

The last resort of the Government is that it should nationalise the business, in which monopoly exists and which the society is not willing to tolerate. But again the difficulty with this system is that the Government has limited economic resources and can nationalise only a few industries.

Similarly while nationalising it is to take into consideration nature of the commodity. If it is of public utility then it may go in for nationalisation immediately otherwise it may be forced to wait for nationalisation, till such time, as the resources are available.

Thus it is very difficult to really effectively either check or control the monopoly. The only effective method is creation of fair competitions. The task is quite difficult, but once that has been created, monopoly can be most effectively checked.