Natural Monopoly

A Natural Monopolies is where one firm because of a unique raw material, technology, or other factors can supply a market's entire demand for a good or service at a price lower than two or more firms can. The existence of natural monopoly conditions would seem to argue in favor of legal rules restricting entry. That is, the existence of a natural monopoly seems to tell us that, as a policy matter, law should ensure that the good or service in question is provided by a single firm. Stuart Minor Benjamin , Howard A. Shelanski , James B. Speta , Philip J. Weiser (2006). TELECOMMUNICATIONS LAW AND POLICY. Carolina Academic Press PG 449 The government should treat telephone, cable or broadcasting companies as Natural Monopolies because if they dont then the consumers wont get a fair price because the company dont have any real competitors so they would be able to charge higher rates. Another reason is because these types of companies understands that any other competitive supplier product would be just wasteful for example, in cases like the water company the pipes are already ran under the ground so if another company tries to build and connect reservoirs to pipes and run it to customers it would be so expensive and wasteful . Also in case like the cable, and telephone company running more wire to everybody home would be wasteful and they will use that to their adventive to get over on the consumer by telling them that they are the only one who can provide the service. Next reason why the government should treat telephone, cable or broadcasting companies as Natural Monopolies is because if they dont other company wouldnt be able to get in because those companies would setup barriers. A Barrier that natural monopolies could setup so no other company could get in is high setup cost. High setup cost is a problem because some small company might not have the funds to afford high startup cost off top. Another barrier can come in the form of advertising. Advertising will be a problem because some companys dont have money to advertise. also because if a larger company has a lot of advertising going on than this might frighten small companys from even trying to compete.Other types of barrier that a as Natural monopolies could setup to stop other companies from getting in is by lowering their prices for that type of service. This could be a problem for a new company just getting in because they havent made any money yet so its a lot harder for a company to lower price when they havent made any thing. Also this would be a problem for smaller companies because they wouldnt have the funds to keep up with a larger company. The last types of barrier that a Natural monopolies could setup to stop other companies from getting in is by offering Loyalty discounts this is a way big companys try to keep their customers from going to a new company, they offer the customers discounts that would be harder for a new or smaller company to give . Train, Kenneth E. (1991). Optimal regulation: the economic theory of natural monopoly. Cambridge, MA, USA: MIT Press. Pg 25 When this company becomes a natural monopoly they will be able to exploit their position and charge high prices, because consumers have no other alternative. Also because there are no direct competitors a monopolist has no incentive to reduce average costs to a minimum, with the result that they are likely to be productively inefficient. The way we can stop companys like this is by setting regulation so it can become more efficient. Also when a company like this is regulated it could be used to bring down barriers to entry and open up a previously state controlled industry to competition. Another reason to set regulation on companys like the treat telephone, cable and broadcasting companies because doing so will create more jobs for America .

ReferencesTrain, Kenneth E. (1991). Optimal regulation: the economic theory of natural monopoly. Cambridge, MA, USA: MIT Press.Stuart Minor Benjamin , Howard A. Shelanski , James B. Speta , Philip J. Weiser (2006). TELECOMMUNICATIONS LAW AND POLICY. Carolina Academic Press