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Natural Monopoly

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Natural Monopoly

Kenneth Banks Telecommunications Law and Regulation (TM584) Professor Dwight Elliot March 7, 2012

Natural Monopoly
When it comes to our economy, the first thing that comes to mind are jobs and the number of people that are unemployed. Could the high unemployment rate be due to the lack of companies hiring or could it also be contributed to the lack of the number of jobs and the need for more jobs to be created? Many feel that it is a combination of both, the lack of hiring as well as the lack of jobs. So now the question is, why not create more jobs? How hard is it to create more jobs? One thing to take a look at is the fact that some companies have a stronghold on a certain product or service within the industry. These companies are looked at as having a monopoly on that industry or that good or service. A monopoly is “an enterprise that is the only seller of a good or service. In the absence of government intervention, a monopoly is free to set any price it chooses and will usually set the price that yields the largest possible profit.” ( Stigler, 2008). Another term that you hear in this situation is the word “natural monopoly.” So is a natural monopoly the same thing as a monopoly? Are they two different entities or are they one in the same? A natural monopoly is present when in any situation a particular company or organization has the ability to handle the demand for a service or a good for the entire market (Benjamin, Lichtman, Shelanskit & Weiser, 2006). Not only are they able to do this, they can do so at a price that is far lower than any other company can. You will usually find these types of situations with utilities companies such as water, electric and in the situations in our class, cable companies.
When looking at a natural monopoly from the standpoint of a water company, the company would have the natural monopoly over other companies because they would already have the infrastructure in place. Equipment, pipelines, storage facilities and so forth are already in place. For another company to want to get into that industry would be very difficult without already having a separate infrastructure in place. When you are talking about other industries such as telephone, cable or broadcasting companies, you have to look for different indicators of a possible natural monopoly just as you did with the water company. We can take a look at cable companies. Cable companies rely on cabling, satellites and other types of transmission equipment. Any given city can have one or several cable companies providing service to its customers. When new housing developments or subdivisions are built, cable companies may place a bid to get the contract to be the company to provide cable to that area. If a nearby subdivision is already has a particular cable company providing service to it, they may have the inside track being that much of their cabling and equipment may already be in place or nearby, thus allowing them to bid lower than other companies. Now on the other hand, if you have a small town or city, there may only be one cable company that provides service to its customers. The same can hold true for a military installation where only one cable company has the contract to provide services to its customers.
In the case of the large cities as well as the smaller ones, it would be more feasible to say that these situations would be considered more as monopolies and not so much as natural monopolies. Until about ten years ago, I do recall cable monopolies in several of the locations that I resided in. While living in Kansas, there was only one cable company that provided goods and services to both the city that I lived in as well as the military installation! This company was able to set its prices in a way for them to maximize the profits that were returned to them and customers basically did not have a choice or the option to cancel and choose a different provider. Satellite television was not an option back then so either you had cable television or you watched television “open air”, meaning you used an antenna or “rabbit ears’ on your television set.
The same situation applies when it comes to television and broadcasting companies. Many years ago, I can recall only 3 major companies and they pretty much had a monopoly on the broadcast industry. Now you have hundreds of television channels to choose from so any monopoly that the “big 3” had back then is pretty much a thing of the past. Those big three companies do however hold a larger share of the broadcast market but they are by no means considered a monopoly.
So in conclusion, when it comes to trying to decide if media firms such as cable, telephone and broadcast industries would be considered as natural monopolies, I would have to say in my judgment, no they are not. You would have to go back and take a look at the definition of a natural monopoly and take it piece by piece and you should come to the same conclusion.

Reference Page

Benjamin, S., Lichtman, D., Shelanskit, H., & Weiser, P. (2006). Telecommunications law and policy. (2nd ed.). Durham, North Carolina: Carolina Academic Press.
Stigler, G. (2008). The concise encyclopedia of economics. Retrieved from http://www.econlib.org/library/Enc/Monopoly.html

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