Monopoly and Market Power: 

Governments have a number of policies that affect monopoly and market power. Two that are intended to reduce monopoly are regulation and antitrust policy. However, there are also policies that purposely increase monopoly. Patent and copyright laws, for example, protect monopoly. The belief that it is socially useful to encourage people to develop new processes and products has led to laws that provide monopoly rewards for those who do so. Patent laws are a case in which there is some recognition that the analysis of efficiency is static but the economy is dynamic.

Competition may mean price takers in a static model, but in a dynamic model it can be striving for positions of temporary monopoly. Joseph Schumpeter argued that this competition for positions of temporary monopoly was the most important type of competition in a market economy. Entrepreneurs would find new products and ways of producing things that would make obsolete the old products and ways of production. In turn their positions would sooner or later be destroyed by new entrepreneurs. For Schumpeter, the essence of market economies was change.

Despite Schumpeter's argument, most economists have argued that the government should take measures to attack the efficiency loss of monopoly. Antitrust policy is one way to do this. Antitrust policy attempts to make firms act in a competitive manner by breaking up firms that are monopolies, prohibiting mergers that would increase market power, and finding and fining firms that collude to establish higher prices.

The antitrust laws in the United States are stricter and more comprehensive than those of other industrialized nations. Many other industrialized nations, perhaps because they focus on the possibility of foreign competition, have minimal antitrust law. In the United States, the original antitrust law was the Sherman Act of 1890, with important extensions added in 1914. Two government agencies have authority to enforce antitrust laws, the Antitrust Division of the Justice Department and the Federal Trade Commission. In addition, the laws allow firms, organizations, or persons who are adversely affected by actions that violate the antitrust acts to sue for damages.