Monopoly and oligopoly can sometimes have negative effects on consumers and our whole economy. Markets dominated by only a few large firms tend to have higher prices and lower output than markets with many sellers. A firm with monopoly power can use predatory pricing. This is the practice of setting the market price below cost to drive competitors out of business. Another way firms try to reduce competition is by buying out their competitors.

     Since the late 1800s, the United States has had antitrust laws to prevent companies from reducing competition. It is the job of the Federal Trade Commission and the Department of Justice’s Antitrust Division to enforce these laws. The government also tries to prevent mergers that might reduce competition and lead to higher prices. A merger is when two or more companies join to form a single firm.

     In the 1970s and 1980s, Congress passed laws leading to the deregulation of some industries. Deregulation is the lifting or reducing of government controls over a market. Markets experiencing deregulation included the airline, electricity, banking, railroad, natural gas and television broadcasting industries. When it is successful, deregulation increases competition and leads to lower prices for consumers. However, it may often cause hardship for employees of companies driven out of business by increased competition.

     Antitrust laws strengthen government control over a market. Deregulation loosens government control. Yet both policies have the same purpose: to promote competition.