Which of the following is a common way that government intervention can affect oligopolies?

• A. By enforcing antitrust laws to prevent collusion and promote competition
• B. By guaranteeing fixed profits for all firms in the market
• C. By requiring firms to set identical prices for their products
• D. By eliminating all barriers to entry for new firms

Answer: (A)

Verified step by step guidance

1. Understand the nature of oligopolies: Oligopolies are markets dominated by a few large firms, which often have significant market power and may engage in strategic behavior such as collusion to maximize joint profits.
2. Recognize the role of government intervention: Governments intervene in oligopolistic markets primarily to promote competition and prevent anti-competitive practices that harm consumers, such as price-fixing or market sharing agreements.
3. Identify common government tools: One key method is enforcing antitrust laws, which are designed to prevent collusion among firms and encourage competitive behavior, thereby protecting consumer welfare.
4. Evaluate the other options: Guaranteeing fixed profits or requiring identical prices would reduce competition and are not typical government policies; similarly, eliminating all barriers to entry is rare and not always feasible or desirable.
5. Conclude that the most common and effective government intervention in oligopolies is enforcing antitrust laws to prevent collusion and promote competition.