South-Western College Publishing - Economics  
With New Regulations, Monopoly May Become Just a Board Game in Mexico
Topic Market Failure, Regulation and Public Choice; Government and the Economy
Key Words antitrust, competition, government regulations
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Reference ID: A145089294
News Story

The Mexican government recently voted to strengthen existing antitrust laws to increase competition among firms. The new regulations should have a significant negative impact on local monopolies, opening the door for competitive U.S. firms.

The Mexican economy is currently full of near-monopolies. For example, the national telecommunications company Telmex owns 95% of local phone lines. Two companies control all of the energy provided to Mexican firms and homes. Two companies share control of broadcast television. With these well-entrenched firms in control, foreign firms, including U.S. companies, have found it difficult to compete in Mexico. Economists place the blame for the struggling Mexican economy over the last few years on this lack of competitiveness among firms in a number of industries. Mexico does have regulations regarding antitrust activity, but the laws have never been strongly enforced and thus are not regarded as serious threats to anti-competitive behavior among few firms. The recently-passed regulations quadruple fines--to as much as US$5.5 million—for antitrust violations and threaten to break up firms that repeatedly violate the new legislation.

While individuals like Telmex’s owner lobbied heavily against the new laws, many people argue that this is a step in the right direction. Increased competitiveness for Mexico can only help both consumers and producers in the longer run.


Telmex could argue that it should be released from these regulations because it is a “natural monopoly.” Under what conditions do natural monopolies arise? With today’s technology, would you expect those conditions to develop in telecommunications? In energy generation?

2. Why do you think we would expect to see market price fall under these new regulations?
3. Can you think of any argument why the government would want to protect these industries from foreign competition, and therefore not engage these regulations?
Source Malkin, Elizabeth. “Mexico Moves to Bolster Economic Competition.” The New York Times. April 29, 2006.
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