Natural monopoly Essay Example for Free

Natural monopoly evidenceI believe that times change and as they, change rules and regulations must adapt to the times. at that placefore, the treatment of the oppo pose industries must represent the different industries as they grow. I do not think the Telephone and disseminate should n invariably digest or ever be considered a Natural Monopoly. The concept of rude(a) monopoly presents a challenging public policy dilemma. On the one hand, a natural monopoly implies that efficiency in production would be better served if a individual firm supplies the entire market. On the other hand, in the absence of any competition the monopoly holder will be tempted to exploit his natural monopoly power in companionship to maximize its profits. A natural monopoly is defined in economics as an manu accompanimenturing where the fixed terms of the capital goods is so high that it is not profitable for a second firm to enter and compete. There is a natural reason for this exertion be ing a monopoly, namely that the economies of scale require one, kinda than several, firms. Small-scale ownership would be less efficient.Natural monopolies are typically utilities such as water, electricity, and natural gas. It would be very costly to build a second set of water and sewerage pipes in a city. Water and gas delivery service has a high fixed cost and a low variable cost. Electricity is promptly being deregulated, so the generators of electric power can now compete. But the infrastructure, the wires that carry the electricity, usually remain a natural monopoly, and the various companies send their electricity by dint of the same grid. Cable as a Natural MonopolyNearly every community in the coupled States allows unless a single cable party to operate within its borders. Since the Boulder decision 4 in which the U. S. Supreme Court held that municipalities might be subject to antitrust liability for anticompetitive acts, most cable immunitys have been nominally no nexclusive but in fact do operate to preclude all competitors. The legal rule for municipal regulation is that cable uses city-owned streets and rights-of-way the economic 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 inevitable that only one firm will survive. Thus, regulation is necessary to dilute the ill-effects of the monopoly. 5 Those who assert that cable television is a natural monopoly focus on its economies of scale that is, its large fixed costs whose duplication by three-fold companies would be inefficient and uneconomical. Thus, competitive entry into the market should be proscribed because it is bound to be destructive.The combative Reality 1. A skeptic hearing exhortations that cable television is a natural monopoly that should be locally regulated could ha ve some questions at this point. First, if cable is a natural monopoly, why do we choose to guarantee it with a franchise? Economists Bruce Owen and Peter Greenhalgh argue persuasively that given economies of scale, if a cable company is responsive and efficient in its pricing 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 arrest competition, the industry by definition is not a natural monopoly. 2. Second, if cable is a natural monopoly, is it necessarily a local monopoly? Some observers use the terms interchangeably, but there is no evidence that economic laws take to be municipal boundaries. Given large fixed costs, does it make mind 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 frequently under the franch ise system.Local franchises make no sense in a true natural monopoly setting. 3. These questions, however, go to the heart of natural monopoly theory itself, a article of belief that is under increasing attack. 10 In the face 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 lay down impossible in the cable context. Cable is both extremely competitive, facing both direct and confirming 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 imputable to the enormous entry barriers and economies of scale associated with the industry. More specifically, a mark et is said to be naturally noncompetitive when one firm can serve consumers at lower costs than two or much firms (Spulber 1995 31).For example, telephone service traditionally has required laying an extensive cable interlocking, constructing numerous calls switching stations, and creating a variety of support services, before service could actually be initiated. Obviously, with such high entry costs, youthful firms can find it difficult to gain 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 relation 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 deoxycytidine monophosphate helped build the ATT or Bell system monopoly. As Robert Crandall (1991 41) noted, Despite the popular belief that the telephone network is a natural monopoly, the ATT monopoly survived until the 1980s not because of its naturalness but because of overt government policy. I forecast that the above facts help support my beliefs that these industries should not be considered Natural Monopolies.These companies just executed and had better site than other in the same industry had. Today 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 training OF THE BELL SYSTEM MONOPOLY . 14(2).