Case Study: The Myth Of Natural Monopoly

The myth of natural monopoly theory was developed first by economists, and then used by legislators to justify franchise monopolies. The theory goes a single producer will eventually be able to produce at a lower cost. This competition would be said to cause consumer inconvenience because of the construction of duplicative facilities, by digging up the streets to put in dual gas or water lines. The truth of natural monopoly was created decades before the theory was formalized by intervention-minded economists. The competition is viewed as a dynamic, rivalries process of entrepreneurship. The competition including potential competition and it will render free market monopoly. The theory of natural monopoly is historical and there is no such evidence of a natural monopoly story. The case study is discussed as public utility industries of the late eighteenth and early nineteenth centuries when local governments were beginning to grant franchise monopolies.

Keywords: natural monopoly, public utility, free market competition, monopolistic, price fixing scheme, free market price, price war, utilities.

THE MYTH OF NATURAL MONOPOLY

I. Introduction

The Myth of Natural Monopoly Competition …show more content…
The economist believing that excessive competition can be destructive if low cost producers drive their less efficient rivals from the market. The competition maybe destructive to high cost competitors. Brown states that gas companies in other cities were exposed to ruinous competition, and then catalogues how those same companies sought desperately to enter the Baltimore market. The competition was so ruinous, why these companies would enter new and presumably just as ruinous markets. Either Brown's theory of "ruinous competition" which soon came to be the generally accepted one was incorrect, or those companies were irrational gluttons for financial