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> the theory is that a natural monopoly is a monopoly such that dismantling it would have other bad effects that would be worse than the direct bad effects of t

> the theory is that a natural monopoly is a monopoly such that dismantling it would have other bad effects that would be worse than the direct bad effects of the monopoly Hm? That's not what it means. Natural Monopoly actually has a very clear Economics 101 definition: "[a]n industry in which multi-firm production is more costly than production by a monopoly"[1]. Or, paraphrased, a natural monopoly is one where fixed costs/barriers to entry are so high that it is difficult to have competition. It seems that in your OP, you're implying that a "natural monopoly" is one that arises without intervention -- this is often the opposite of the case, governments intentionally create and support natural monopolies when they can identify them. Telephone service is a great example. Laying physical wires costs a lot of money. Laying the physical wires is probably the most expensive part of providing telephone service. Having multiple companies in competition would result in costs rising for everyone, because the cost to lay the wires is the same for each company, but each company has fewer subscribers to pay off those costs. In this case, a regulated monopoly is the best thing for consumers, with the idea that government regulation would offset the issues that come from monopoly status. "Utilities" as a whole are typically natural monopolies. 1: https://en.wikipedia.org/wiki/Natural_monopoly#Formal_definition_of_a_natural_monopoly https://en.wikipedia.org/wiki/Natural_monopoly#Formal_defini... (R.I.P. William Baumol)

jessaustin 9y ago
If you really see a contradiction between our two definitions, I'll take your confident affirmations of the status quo with a grain of salt. See the sibling comment from 'ghaff for a much more complete understanding of this concept.
- Nav_Panel 9y ago
  I don't see a contradiction but a difference. You say: dismantling it would have other bad effects that would be worse than the direct bad effects of the monopoly I wanted to clearly state that it's not some sort of abstract "other bad effects", it's that prices would increase for the consumer if the monopoly was disbanded. My thought/critique of ghaff's comment involves physical last-mile infrastructure. Alternatives to regular natural monopolies exist, but we'd have to have some pretty tight regulations on how, say, land beneath or above roadways could be used. The idea of having monopolies at local scales that compete at larger scales makes sense to me. But replicating last-mile infrastructure seems wasteful/bad/hard to solve (multiple companies building overhead power lines? multiple companies laying wire beneath roadways and apartment buildings? how do we deal with public land being used for private infrastructure purposes?) without some sort of regulatory control. Looking at it over sufficiently long time horizons and saying "well, it's all temporary anyway" kinda buries the purpose of even having a discussion.
  - jessaustin 9y ago
    Ma Bell and her daughters have been getting the same sweet deal for over a century now. If that's "temporary", I don't want to see "permanent". First/last mile (depends on one's perspective, you know) really is the only remaining support for the whole rotten edifice of USA telecom. Thus it's instructive that FCC fights at every turn to stymie white spaces, SDR, or any other 21C radio technology. When the consumer can choose from many ISPs, the first competition in a century will kill every existing firm.
nickik 9y ago
Yes. Very interesting. The interesting part to me is that in terms of cost a monopolistic company might be the most effective. The problem is just that cost and price don't have much to do with each other. A monopoly provider is unlikely to actually provide low prices unless he knows competition could emerge. Having two parallel infrastructure might be less efficent in terms of cost, but could still be more efficent in terms of prices to the consumer. Both politicans and economist have argued that just having government step in could provide low cost and low price. I think this assumtion is flawed. Having multible infastuctures adds layers of competition that even with government services or regulation are hard to achive. How well you utilise your infrastructre, what sort of payment structure are costumers provided with, quality of service, how for and in what direction do you grow your network and so on. Government stepping in can maybe solve the short term problem, but if think about the long term, letting this market be free of a government regulated monopoly procides the chance that another company can come in, either starting in places where the monopoly has not reached and expand from there or start where the consumers hurt the most and try to expand from there. I think the answer here is probebly differnt for every industry, laying a cable and a sewage system have very different cost structures. The most important thing about these regulation seems to be that you never exclude competition explicitly. So you could regulate a infrastructure provider and give him price ceilings or something.

jessaustin 9y ago

If you really see a contradiction between our two definitions, I'll take your confident affirmations of the status quo with a grain of salt. See the sibling comment from 'ghaff for a much more complete understanding of this concept.

Nav_Panel 9y ago
I don't see a contradiction but a difference. You say: dismantling it would have other bad effects that would be worse than the direct bad effects of the monopoly I wanted to clearly state that it's not some sort of abstract "other bad effects", it's that prices would increase for the consumer if the monopoly was disbanded. My thought/critique of ghaff's comment involves physical last-mile infrastructure. Alternatives to regular natural monopolies exist, but we'd have to have some pretty tight regulations on how, say, land beneath or above roadways could be used. The idea of having monopolies at local scales that compete at larger scales makes sense to me. But replicating last-mile infrastructure seems wasteful/bad/hard to solve (multiple companies building overhead power lines? multiple companies laying wire beneath roadways and apartment buildings? how do we deal with public land being used for private infrastructure purposes?) without some sort of regulatory control. Looking at it over sufficiently long time horizons and saying "well, it's all temporary anyway" kinda buries the purpose of even having a discussion.
- jessaustin 9y ago
  Ma Bell and her daughters have been getting the same sweet deal for over a century now. If that's "temporary", I don't want to see "permanent". First/last mile (depends on one's perspective, you know) really is the only remaining support for the whole rotten edifice of USA telecom. Thus it's instructive that FCC fights at every turn to stymie white spaces, SDR, or any other 21C radio technology. When the consumer can choose from many ISPs, the first competition in a century will kill every existing firm.

nickik 9y ago

Yes. Very interesting. The interesting part to me is that in terms of cost a monopolistic company might be the most effective. The problem is just that cost and price don't have much to do with each other. A monopoly provider is unlikely to actually provide low prices unless he knows competition could emerge. Having two parallel infrastructure might be less efficent in terms of cost, but could still be more efficent in terms of prices to the consumer. Both politicans and economist have argued that just having government step in could provide low cost and low price. I think this assumtion is flawed. Having multible infastuctures adds layers of competition that even with government services or regulation are hard to achive. How well you utilise your infrastructre, what sort of payment structure are costumers provided with, quality of service, how for and in what direction do you grow your network and so on. Government stepping in can maybe solve the short term problem, but if think about the long term, letting this market be free of a government regulated monopoly procides the chance that another company can come in, either starting in places where the monopoly has not reached and expand from there or start where the consumers hurt the most and try to expand from there. I think the answer here is probebly differnt for every industry, laying a cable and a sewage system have very different cost structures. The most important thing about these regulation seems to be that you never exclude competition explicitly. So you could regulate a infrastructure provider and give him price ceilings or something.