Case of Study 1 - Natural Monopoly

Running head: NATURAL MONOPOLY
Natural Monopoly
Anna Archer
NETW-584
09/10/2016
Professor: Dwight Elliott
NATURAL MONOPOLY
2
Natural Monopoly
A natural monopoly in economics is considered to be a monopoly that appears when

there are extremely high fixed costs of distribution, such as exist when large-scale infrastructure
is required to ensure supply (Economics Online, 2016). Natural monopolies are a complex term
often causing confusion on whether or not is more beneficial to have one organization
controlling a target market or more than one creating competition. Natural monopolies occur in
any industry, textile, technology, etc. in many cases because of the rapid growth of the industry;
it is hard to detect which industries have become a natural monopoly like in the case of the cable
industry.
Natural monopolies take the inadequate or limited supplies of the industry, and it uses
them in the most beneficial way. In some cases, it is most useful to have a natural monopoly
rather than multiple organizations competing with each other, because the organization one
single organization can offer the customer the lowest price available, and the most customers the
organization gets, the lower the price of the product or service can be.
Lets use the cable industry as an example:
The cost of the cable grid appears to be the biggest cost of a cable television
system and to be largely invariant to the number of subscribers the system has. Once the
grid is in placeonce every major street has a cable running above or below it that can
be hooked up to the individual residences along the streetthe cost of adding another
subscriber probably is small. If so, the average cost of cable television would be
minimized by having a single company in any given geographical area, for if there is
more than one company and therefore more than one grid, the cost of each grid will be
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spread over a smaller number of subscribers, and the average cost per subscriber, and
hence price, will be higher (Minor, 2006, p. 445).
Analyzing the previous example shows the benefits of having one organization
controlling a certain area of the market rather than multiple organizations. These allow customers
to receive the best price available for their service. Another benefit of the monopoly would be the
more customers the organization has there would be a higher demand for employees, opening the
door for employments in that location.
The government should treat telephone, cable and broadcast companies as natural
monopolies. The main reason for this is because of the way these companies are spread out in the
Country. In some cities, there is only one choice for a cable provider, and even though this is
beneficial for the customer because of the cost of the service, the company still operating under
the definition and terms of a natural monopoly.
A monopoly gives the vendor many opportunities. The number one opportunity is the
ability to set their prices as high or as low as they please, simply because there is no competition
in the market and the customers would have to stay with that organization if they truly need and
want the service. This is where the government plays an important factor in this market, by
ensuring that customers receive the best service to a reasonable and fair cost. The government
can ensure this happens by creating laws that prohibit the rise of prices above certain limits and
sanctioning those that fail to comply with the stated law.
In conclusion, natural monopolies are a real fact, and it can develop in any market;
however, the government has the power to ensure that customers are receiving what they are
paying for and that the clients are receiving fair prices for their services. Natural monopolies
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often cant be stopped from developing, but they can be stopped from power abuse in that
organization.
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References:
Economics Online. (2016). Natural monopolies exist when one firm dominates an industry.
Retrieved from
http://www.economicsonline.co.uk/Business_economics/Natural_monopolies.html
Minor, S., Douglas, B., Lichtman, G., Shelanski, H. A., Weiser, P. J. (Aug-06).
Telecommunications Law and Policy, 2nd Edition [VitalSource Bookshelf version].
Retrieved from https://bookshelf.vitalsource.com/books/9781594601392

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Running head: NATURAL MONOPOLY

A natural monopoly in economics is considered to be a monopoly that appears when

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