Regulation

In the United States, for most of the 20th Century, the most common response has been regulation. In this system, a private monopoly is recognized and protected as such, on the condition that it keep its price down below the profit-maximizing level. The monopoly would be allowed to earn a "fair rate of return."

Over the years, this was more and more interpreted as meaning that the monopoly would operate at Q₂, where the price just covers average cost. This is less efficient than Q₁, but better than Q₃. However, there are some other complications that led economists and regulators to question this interpretation by the 1960's. In recent years, the trend has been away from regulation.