Natural monopoly Essay

I call back that times change and as they, change rules and regulations must adapt to the times. Therefore, the discourse of the different industries must represent the different industries as they grow. I do non think the Telephone and Broadcast should never dumbfound or ever be considered a Natural Monopoly. The concept of innate(p) monopoly presents a challenging public policy dilemma. On the one hand, a essential monopoly implies that efficiency in production would be better served if a maven firm supplies the entire market.On the other hand, in the absence of whatsoever competition the monopoly holder bequeath be tempted to exploit his inbred monopoly force play in order to maximize its profits. A native monopoly is defined in stintingals as an perseverance where the fixed exist of the capital goods is so high that it is not profitable for a second firm to put in and compete. There is a pictorial reason for this industry being a monopoly, namely that the economi es of scale require one, rather than several, firms. Small-scale ownership would be less efficient.Natural monopolies are typically utilities such as water, electricity, and internal gas. It would be very costly to fabricate a second chasten of water and sewerage pipes in a city. Water and gas preservation inspection and repair has a high fixed cost and a down(p) variable cost. Electricity is now being deregulated, so the generators of electric world magnate can now compete. But the infrastructure, the wires that carry the electricity, usually remain a graphic monopoly, and the various companies send their electricity through the same grid. cable television service as a Natural Monopoly.Nearly every connection in the United States al starts only a wholeness cable comp either to die hard within its borders. Since the Boulder decision 4 in which the U. S. Supreme Court held that municipalities aptitude be subject to antitrust liability for anticompetitive acts, most cable rights watch been nominally nonexclusive but in point do hunt to anticipate all competitors. The legal rationale 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 system of natural monopoly holds that because of structural conditions that exist in certain industries, competition between firms cannot travel and whenever these conditions exist, it is inevitable that only one firm will survive. Thus, regulation is incumbent to dilute the ill-effects of the monopoly. 5 Those who assert that cable television is a natural monopoly contract on its economies of scale that is, its too large fixed costs whose duplication by multiple companies would be inefficient and wasteful. Thus, competitive entry into the market should be proscribed because it is bound to be destructive.The Competitive Reality I remember that times change and as they, change rules and regulations must adapt to the times. Therefore, the treatment of the different industries must represent the different industries as they grow. I do not think the Telephone and Broadcast should never have or ever be considered a Natural Monopoly. The concept of natural 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 single firm supplies the entire market.On the other hand, in the absence of either competition the monopoly holder will be tempted to exploit his natural monopoly post in order to maximize its profits. A natural monopoly is defined in economics as an industry where the fixed cost of the capital goods is so high that it is not profitable for a second firm to discharge and compete. There is a natural reason for this industry being a monopoly, namely that the economies of scale require one, rather than several, firms. Small-scale ownership would be less efficient.Natural monopol ies are typically utilities such as water, electricity, and natural gas. It would be very costly to build a second rear of water and sewerage pipes in a city. Water and gas sales pitch service has a high fixed cost and a low variable cost. Electricity is now 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 through the same grid. seam as a Natural MonopolyNearly every community in the United States allows only a single cable company to operate within its borders. Since the Boulder decision 4 in which the U. S. Supreme Court held that municipalities aptitude be subject to antitrust liability for anticompetitive acts, most cable immunitys have been nominally nonexclusive but in fact do operate to rule in all competitors. The legal rationale 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 suffer and whenever these conditions exist, it is inevitable that only one firm will survive. Thus, regulation is demand to dilute the ill-effects of the monopoly. 5 Those who assert that cable television is a natural monopoly guidance on its economies of scale that is, its large fixed costs whose duplication by multiple companies would be inefficient and wasteful. Thus, competitive entry into the market should be proscribed because it is bound to be destructive.The Competitive Reality 1. A unbeliever hearing exhortations that cable television is a natural monopoly that should be locally regulated could have some questions at this point. First, if cable is a natural monopoly, why do we need to guarantee it with a franchise? Economists Bruce Owen and creatu re Greenhalgh argue persuasively that given economies of scale, if a cable company is responsive and efficient in its pricing and service quality then in that respect 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 exposition is not a natural monopoly. 2. Second, if cable is a natural monopoly, is it of necessity a local monopoly? Some observers use the terms interchangeably, but in that respect 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 ofttimes under the franchise 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 doctrine that is under increasing attack. 10 In the face of crumbling customary wisdom in this area, the burden should be on the natural monopoly proponents to designate that competition is not possible, and further, that regulation is necessary. Such a demonstration will prove impossible in the cable context. Cable is both passing competitive, facing both direct 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 give tongue to to exist when a single firm is able to control most, if not all, output and prices in a given market due to the abundant entry barriers and economies of scale associated with the industry. More specifically, a market is said to be naturally monopolistic when one firm can serve consumers at lower costs than two or more firms (Spulber 1995 31).For example, telep hone service traditionally has required laying an extensive cable network, constructing numerous calls sack 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 intemperate 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 relative to newcomers. The telephone monopoly, however, has been anything but natural.Overlooked in the textbooks is the extent to which federal and state governingal actions throughout this century helped build the AT&T or Bell system monopoly. As Robert Crandall (1991 41) noted, disrespect the popular belief that the telephone network is a natural monopoly, the AT&T monopoly survived until the 1980s not because of its naturalness but because of overt government policy. I hope 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 upgrade Report. Retrieved January 9, 2012, from http//www. progress. org/fold74. htm Thierer , A. D. (1994). UNNATURAL MONOPOLY CRITICAL MOMENTS IN THE DEVELOPMENT OF THE BELL SYSTEM MONOPOLY . 14(2).