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Oligopoly versus competitors in the marketplace

This picture is an arial view of a Kinder Morgan facility.
Large corporations, such as the natural gas producer Kinder Morgan, can bring economies of scale to the marketplace. Will that benefit consumers? Or is more competition better for consumers? (Credit: modification of work by Derrick Coetzee/Flickr Creative Commons)

More than cooking, heating, and cooling

If you live in the United States, there is a slightly better than 50–50 chance your home is heated and cooled using natural gas. You may even use natural gas for cooking. However, those uses are not the primary uses of natural gas in the U.S. In 2012, according to the U.S. Energy Information Administration, home heating, cooling, and cooking accounted for just 18% of natural gas usage. What accounts for the rest? The greatest uses for natural gas are the generation of electric power (39%) and in industry (30%). Together these three uses for natural gas touch many areas of our lives, so why would there be any opposition to a merger of two natural gas firms? After all, a merger could mean increased efficiencies and reduced costs to people like you and me.

In October 2011, Kinder Morgan and El Paso Corporation, two natural gas firms, announced they were merging. The announcement stated the combined firm would link “nearly every major production region with markets,” cut costs by “eliminating duplication in pipelines and other assets,” and that “the savings could be passed on to consumers.”

The objection? The $21.1 billion deal would give Kinder Morgan control of more than 80,000 miles of pipeline, making the new firm the third largest energy producer in North America. As the third largest energy producer, policymakers and the public wondered whether the cost savings really would be passed on to consumers, or would the merger give Kinder Morgan a strong oligopoly position in the natural gas marketplace?

That brings us to the central question this chapter poses: What should the balance be between corporate size and a larger number of competitors in a marketplace? We will also consider what role the government should play in this balancing act.

Introduction to monopoly and antitrust policy

In this chapter, you will learn about:

  • Corporate Mergers
  • Regulating Anticompetitive Behavior
  • Regulating Natural Monopolies
  • The Great Deregulation Experiment

The previous chapters on the theory of the firm identified three important lessons: First, that competition, by providing consumers with lower prices and a variety of innovative products, is a good thing; second, that large-scale production can dramatically lower average costs; and third, that markets in the real world are rarely perfectly competitive. As a consequence, government policymakers must determine how much to intervene to balance the potential benefits of large-scale production against the potential loss of competition that can occur when businesses grow in size, especially through mergers.

For example, in 2011, AT&T and T-Mobile proposed a merger. At the time, there were only four major mobile phone service providers. The proposal was blocked by both the Justice Department and the FCC.

The two companies argued that the merger would benefit consumers, who would be able to purchase better telecommunications services at a cheaper price because the newly created firm would be able to produce more efficiently by taking advantage of economies of scale and eliminating duplicate investments. However, a number of activist groups like the Consumer Federation of America and Public Knowledge expressed fears that the merger would reduce competition and lead to higher prices for consumers for decades to come. In December 2006, the federal government allowed the merger to proceed. By 2009, the new post-merger AT&T was the eighth largest company by revenues in the United States, and by that measure the largest telecommunications company in the world. Economists have spent – and will still spend – years trying to determine whether the merger of AT&T and BellSouth, as well as other smaller mergers of telecommunications companies at about this same time, helped consumers, hurt them, or did not make much difference.

This chapter discusses public policy issues about competition. How can economists and governments determine when mergers of large companies like AT&T and BellSouth should be allowed and when they should be blocked? The government also plays a role in policing anticompetitive behavior other than mergers, like prohibiting certain kinds of contracts that might restrict competition. In the case of natural monopoly, however, trying to preserve competition probably will not work very well, and so government will often resort to regulation of price and/or quantity of output. In recent decades, there has been a global trend toward less government intervention in the price and output decisions of businesses.

Questions & Answers

In few words, what is the role of interest rate in economy?
Carlos Reply
what is population
Nyakeh Reply
total number of people in a given area or country
Clement
the total number of people at a given area or country
Clement
total number of people in a given area or country
okhiria
What is price Elasticity of demand?.
Samuel
The responsiveness of the quantity of a commodity demanded to a change in its price, expressed as the percentage change in quantity demanded divided by the percentage change in price.
EMMANUEL
please rice and beans will be what type of demand but note we mostly cook it together
Oladosu Reply
complementary or joint demand
Yillah
but did you know you can demand for rice without beans so how is it joint or complementary
Oladosu
From my point of view, rice and beans are replaceable goods, hence they can't be complementary.
Carlos
what are the money value
Wisdom Reply
Nothing more than a purchase power, in other words, $100 now, must have the same value after 1 year.
Carlos
what is Monopoly
Rebecca Reply
what is money
Lawal Reply
It can be define as a big transaction that can control any business for one place to another base.
Akinlo
money is recognisable note to accept both parties selling and buying
Hassan
i don still understan
Rene
hey
Abdul
hi
Rene
money is anything generally accepted as a medium of exchange
Awwal
Money is anything generally accepted as a medium of exchange and for the settlement of goods and services .
Korda
hi good ppl, pls help out
Tumi
discuss human and natural resources as develop strategies ro improving living condition of citizens in developing countries.
Tumi
I don't understand the question.
Naomi
it's a form of currency used for 2 or more individuals or parties in order to reach their amicable personal or business attainment. one must understand that money itself can manifest in multiple fashions for which the individuals or parties adheres.
are u trying to say we shld discuss ways in which human natural resources help in improving living condition of citizens in developing countries?
Naomi
money is a legal thunder generally accepted as a medium of exchange for the payment of debt ,goods and services
Naomi
money is a way of payment.
Carlos
money is any thing that is generally accepted as a medium of exchange good for good and settlement of debt and means of payment
Yillah
money is nothing but a object which is used for exchange of goods and services.
Harshita
money is anything that is generally accepted as payment of goods and services and settlement of debt
Rebecca
what is demand
Melissa Reply
demand is where the customer is willing and able to buy goods and services during a given period of time
idk
demand is the ability and willingness of an individual to buy goods and services at a given price in a particular period of time
Alpha
demand is the ability to buy a specific quantities of goods and services at a given price and at a specific period of time
rosemary
what are the rules of demand
rosemary
Rosemary Nsebon, Do you mean laws of demand?
Alpha
what are the rules of demand
Rene
the rule of demand is the higher the price the lower the quantity demanded and the lower the price the higher the quantity demanded
mbi
thank
Rene
what is unemployment
Rebecca
unemployment is a scenario or a phenomenon in an economy whereby people are willing are able to work but cannot a job
mbi
Suppose you have a team of two workers: one is a baker and one is a chef. Explain why the kitchen can produce more meals in a given period of time if each worker specializes in what they do best than if each worker tries to do everything from appetizer to dessert. please I need a urgent answer
Oladosu Reply
Enables individuals and countries to consume a variety of goods and services
Iddrisu
what is the meaning of competency
Oladosu Reply
competency is an ability and courage to do something perfectly
Abdullahi
ability to perform some task
Segun
rival
Ray
thanks 🙏 it is also the same with the core competency
Oladosu
A sufficient supply
Ebenezer
Ebenezer you mean the (core competency) right?
Oladosu
what is mean,median and mode
Ikeh Reply
mean is the average number of a given data
Gallant
median is the middle number of a given data
Gallant
in a given data sorry
Mitchel
hi
Sajib
Pls am new here
Physcal
what are development bank in Nigeria
Adedigba Reply
.hi
Physcal
hi
Adedigba
hw
Physcal
and cool
Rosie
nice to meet everyone
Rosie
hi how are dears
Mumtaz
how can we development economic in our country
Mumtaz
hi
Charm
Payroll and​ 4p
Wasuroj
Agriculture
Wasuroj
Export
Wasuroj
Transport
Wasuroj
Change management​ and​ cerrancy
Wasuroj
Empoyee
Wasuroj
Lawyer army and​ Lawyer​
Wasuroj
animal husbandry essay
Rakuane Reply
what's the primary location of capital and money market respectively
ALIMI
what is bank
Nyakeh Reply
A bank is an institution set up purposely for the save keeping of money and other valuables
Alpha
A bank is a financial institution which helps people to save their money
Cyprian
pls define the HRM and HRP
Mumtaz
we have no money in bank....the bank owes us
Ray
When a supply curve start from the origin price elasticity of supply is unitory. Provide a simple proof
Felix Reply
Oui
Bobbo
please help someone should help me this question
Felix
ok
Anita
what is price
Divine Reply
the perchesing amount of something is called price
Nasir

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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