Explain two possible government responses to the abuse of monopoly power.

Monopoly power refers to the ability of a firm to set prices. Legislation is a form to reduce monopoly power. Most countries have laws that try to promote competition by preventing collusion between oligopolistic firms (agreements to collaborate, often to fix prices) for the purpose of restricting competition between them, as well as preventing anti-competitive behaviour by a single firm. A well- known example of anti-competitive firms from selling operating system, thus maintaining its operating systems monopoly. Firms that are found guilty of anticompetitive are usually asked to pay fines (in the case of Microsoft).
Government regulation can be used to break down such power and introduce new competition, the markets become contestable- new firms can enter because BTE are reduced. For example, in Singapore, Singtel and SBS used to be state-owned monopoly, but were later privatised and now become oligopolistic markets. This is effective because privatisation results in more competition; more rival firms enter the market and firms become less productive inefficient (reduce costs to maximise profits) and dynamic efficient (innovating and changing the products over time). It is also good because the state-owned monopoly could be suffering from diseconomies of scale, if it is broken down, there are more costs savings.