Natural monopoly Essay

I believe that times change and as they, change rules and enactments must adapt to the times. Therefore, the treatment of the different industries must counterbalance the different industries as they grow. I do non think the resound and Broadcast should never have or ever be considered a innate Monopoly. The concept of lifelike monopoly presents a challenging public form _or_ system of government dilemma. On the cardinal hand, a pictorial monopoly implies that efficiency in drudgery would be better served if a atomic number 53ness firm supplies the entire market.On the other hand, in the absence of any competition the monopoly holder volition be tempted to exploit his pictorial monopoly power in order to maximise its profits. A natural monopoly is defined in economics as an pains where the fixed cost of the capital goods is so high-pitched that it is not profitable for a second firm to enter and compete. There is a natural reason for this industry being a monopoly, namely that the economies of scale gather up one, rather than several, firms. Small-scale ownership would be less efficient.Natural monopolies ar 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 like a shot being deregulated, so the generators of electric power can now compete. tho the infrastructure, the wires that carry the electricity, usually remain a natural monopoly, and the various companies orchestrate their electricity through the same grid. Cable as a Natural MonopolyNearly every community in the United States allows only a whizz phone line company to operate within its borders. Since the Boulder determination 4 in which the U. S. Supreme Court held that municipalities might be subject to antimonopoly liability for anticompetitive acts, most dividing line franchises have b een nominally nonexclusive but in fact do operate to preclude all competitors. The legal precept 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 incumbent to dilute the ill-effects of the monopoly. 5 Those who assert that cable video recording is a natural monopoly focus on its economies of scale that is, its enlarged fixed costs whose duplication by multiple companies would be ineffective and uneconomic. Thus, competitive presentation into the market should be proscribed because it is bound to be destructive.The Competitive Reality 1. A skeptic hearing exhortations that cable television is a natural monopoly that shou ld be locally regulated could have nigh questions at this point. First, if cable is a natural monopoly, why do we learn to guarantee it with a franchise? Economists Bruce Owen and Peter Greenhalgh argue persuasively that presumption economies of scale, if a cable company is responsive and efficient in its determine and service quality then there will be critical 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? just about observers use the terms interchangeably, but there is no evidence that economic laws respect municipal boundaries. Given large fixed costs, does it make aesthesis to award a local franchise to one company when another(prenominal) already has facilities in an adjacent community? Yet such wasteful duplication, as the natural mono poly proponents would call it, occurs frequently under(a) the franchise system. local anaesthetic 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 conventional wisdom in this area, the freight 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 discipline and indirect market challenges, and, in any event, is better left unregulated.For umpteen decades, economic textbooks have held up the telecommunications industry as the ideal mildew 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 ec onomies of scale associated with the industry. much specifically, a market is said to be naturally monopolistic when one firm can serve consumers at lower costs than deuce or more firms (Spulber 1995 31).For example, ring service traditionally has required move an extensive cable network, constructing numerous calls switching stations, and creating a variety of offer services, before service could actually be initiated. Obviously, with such high entry costs, new 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 back to newcomers. The telephone monopoly, however, has been anything but natural.Overlooked in the textbooks is the extent to which federal and deposit governmental actions throughout this century helped build the AT&T or Bell system monopoly. As Robert Crandall (1991 41) noted, Despite the popular belie f 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 preceding(prenominal) facts help support my beliefs that these industries should not be considered Natural Monopolies.These companies just penalise and had better site than other in the same industry had. immediately ATT is just as strong as it ever was.References Benjamin, S. M. , Lichtman, D. G. , Shelanski, H. , & Weiser , P. (2006). FOUNDATIONS. In Telecommunications rectitude 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 DEVELOPMENT OF THE BELL SYSTEM MONOPOLY . 14(2).