Natural Monopoly

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Natural Monopoly
Telephones, Cable, and Broadcasting
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TM 584

Natural Monopoly: Telephones, Cable and Broadcasting

We all hear the term “monopoly” before. If someone does not know a monopoly is defined as “The exclusive possession or control of the supply or trade in a commodity or service.” However a natural monopoly is a little bit different in meaning from its counterpart. In this paper we will be looking into the question: whether the government should view telephones, cable, or broadcasting as natural monopolies or not; and should they be regulated or not?
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 enter 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 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 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 (Fred et al., 1999). The telecommunications industry has in the past been considered to be a natural monopoly. Like railways and water provision, the existence of several companies supplying the same area would result in an inefficient multiplication of cables, transformers, pipelines etc. However the perception of what constitutes a natural monopoly is now changing - in part because of the impact…...

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