Natural Monopoly Generally, a Monopoly Is Taken Essay

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Natural Monopoly

Generally, a monopoly is taken to be a situation whereby a given entity controls or owns the whole market or a significant portion of the same for a specified good or service. Essentially, there are several types of monopolies. In this text, I concern myself with natural monopolies.

A natural monopoly in the opinion of Baumol and Blinder (2007) "is an industry in which advantages of large-scale production make it possible for a single firm to produce the entire output of the market at a lower average cost than a number of firms, each producing a smaller quantity." Basically, what brings about a natural monopoly are the significant start-up as well as fixed costs associated with running a given type of business in a specific market. A good example of a natural monopoly in this case is a utility company operating in the utilities industry. For instance, when it comes to water distribution, such an undertaking can only take place through the construction of a network of pipes throughout the specified locality. In such a case, multiple firms seeking to offer the same service within the same area would be forced to lay water pipes concurrently -- an undertaking that does not make both economic and financial sense.

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As King et al. (2011) note, when it comes to water distribution, "the average total cost of water is lowest if a single firm serves the entire market." The sewage industry remains yet another example of a natural monopoly. For instance, a firm seeking to construct a sewerage system in New York City would find it particularly costly to lay a second set of sewer pipes. It therefore follows that in a way, some industries regarded natural monopolies tend to possess a 'natural' reason for being classified as such. This reason could be that economies of scale accrue to only one, as opposed to several companies.

In my opinion, I am convinced that the government should treat as natural monopolies both cable and telephone companies. My assertion in this case is founded on the fact that in the event of an establishment of operations….....

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