Natural monopoly Essay

I believe that times tack and as they, change rules and rulers must adapt to the times. Therefore, the discussion of the different industries must represent the different industries as they grow. I do non think the visit and Broadcast should n eer so have or ever be considered a ingrained Monopoly. The concept of native monopoly presents a challenging public policy dilemma. On the one hand, a inwrought monopoly implies that efficiency in production would be check replyd if a adept level supplies the entire grocery.On the other hand, in the absence of any competition the monopoly holder bequeath be tempted to exploit his inborn monopoly power in order to maximize its profits. A indwelling monopoly is be in sparings as an attention where the unbending approach of the capital goods is so high that it is not profitable for a second firm to give in and compete. There is a ingrained reason for this industry being a monopoly, namely that the economies of plateful c ommand one, rather than several, firms. Small-scale ownership would be slight efficient.Natural monopolies are typically utilities such as water, electricity, and natural gas. It would be very costly to reach a second set of water and sewage pipes in a city. Water and gas talking to portion has a high stiff cost and a low variable cost. Electricity is today being deregulated, so the generators of electric power puke now compete. But the infrastructure, the wires that carry the electricity, usually abide a natural monopoly, and the various companies send their electricity through the same grid. seam as a Natural MonopolyNearly every community in the United States allows only a single argument company to operate within its borders. Since the Boulder finish 4 in which the U. S. Supreme Court held that municipalities might be subject to antitrust liability for anticompetitive acts, most furrow franchises have been nominally nonexclusive but in feature do operate to precl ude all competitors. The licit rationale for municipal regulation is that cable television uses city-owned streets and rights-of-way the stinting rationale is the assumption that cable is a natural monopoly. The theory of natural monopoly holds that because of structural conditions that exist in certain industries, competition between firms cannot endure and whenever these conditions exist, it is unavoidable that only one firm leave behind survive. Thus, regulation is necessary to dilute the ill-effects of the monopoly. 5 Those who assert that cable telly is a natural monopoly focus on its economies of scale that is, its large fixed costs whose duplication by multiple companies would be inefficient and wasteful. Thus, competitive accession into the market should be proscribed because it is bound to be destructive.The Competitive Reality 1. A skeptic tryout exhortations that cable television is a natural monopoly that should be topical anaestheticly regulated could have some questions at this point. First, if cable is a natural monopoly, why do we gather up to guarantee it with a franchise? Economists Bruce Owen and slam Greenhalgh argue persuasively that given economies of scale, if a cable company is responsive and efficient in its price and service quality then there will be little incentive for competitors to enter, and no need for an exclusionary franchise policy.9 Thus, if entry restrictions are necessary to peck competition, the industry by definition is not a natural monopoly. 2. Second, if cable is a natural monopoly, is it needfully a local monopoly? Some observers use the wrong interchangeably, but there is no evidence that economic laws respect municipal boundaries. Given large fixed costs, does it make sense to award a local franchise to one company when another already has facilities in an adjacent community? Yet such wasteful duplication, as the natural monopoly proponents would call it, occurs often under the franchise system.Loca l franchises make no sense in a true natural monopoly setting. 3. These questions, however, go to the heart of natural monopoly theory itself, a doctrine that is under increasing attack. 10 In the expression of crumbling conventional wisdom in this area, the burden should be on the natural monopoly proponents to demonstrate that competition is not possible, and further, that regulation is necessary. Such a demonstration will prove impossible in the cable context. Cable is both extremely competitive, facing both immediately and indirect market challenges, and, in any event, is better left unregulated.For many decades, economic textbooks have held up the telecommunications industry as the ideal model of natural monopoly. A natural monopoly is said to exist when a single firm is able to control most, if not all, output and prices in a given market due to the enormous entry barriers and economies of scale associated with the industry. much specifically, a market is said to be by nat ure monopolistic when one firm can serve consumers at lower costs than two or more firms (Spulber 1995 31).For example, telephone service traditionally has indispensable laying an extensive cable network, constructing numerous calls change by reversal stations, and creating a variety of support services, before service could actually be initiated. Obviously, with such high entry costs, new firms can find it difficult to light upon a toehold in the industry. Those problems are compounded by the fact that once a single firm overcomes the initial costs, their average cost of doing business drops rapidly relative to newcomers. The telephone monopoly, however, has been anything but natural.Overlooked in the textbooks is the extent to which federal and state governmental actions throughout this century helped build the AT&T or Bell system monopoly. As Robert Crandall (1991 41) noted, Despite the democratic belief that the telephone network is a natural monopoly, the AT&T monopoly surv ived until the 1980s not because of its whiteness but because of overt government policy. I bank that the above facts help support my beliefs that these industries should not be considered Natural Monopolies.These companies just executed and had better position than other in the same industry had. straight off ATT is just as strong as it ever was.References Benjamin, S. M. , Lichtman, D. G. , Shelanski, H. , & Weiser , P. (2006). FOUNDATIONS. In Telecommunications Law and Policy . (2nd ed. ). (pp. 437 469). Durham, NC Carolina Academic Press. Foldvary, F. E. (1999). Natural Monopolies . The Progress Report. Retrieved January 9, 2012, from http//www. progress. org/fold74. htm Thierer , A. D. (1994). UNNATURAL MONOPOLY CRITICAL MOMENTS IN THE ontogenesis OF THE BELL SYSTEM MONOPOLY . 14(2).