Evaluate the view that government regulation of monopolistically competitive markets is unnecessary, and that polices to encourage competition and prevent the abuse of monopoly power should focus entirely on oligopolies and monopolies. (June 2017)
Plan
- Intro
- P1 - monopolies and oligopolies need to be regulated
- prisoners dilemma and tacit collusion
- monopoly diagram
- allocative inefficiency
- Evaluation - dynamic efficiency
- P2 - monopolistically competitive markets do not need government regulation
- contestability is high
- long-run outcome leads firms closer to allocative efficiency and productive efficiency
- Evaluation - prices are still higher compared to perfect competition due to product differentiation, unecessary advertising? also no dynamic efficiency
- Conclusion - monopolies may need to be regulated but not always. monopolistic competition does not need to be regulated