WHEN THE
GOVERNMENT PLAYS
IN THE MARKET
Natural Monopolies and Antitrust Actions
Review Markets
What about
when a
monopoly
means
LOWER
costs?
Natural Monopoly
• One firm
• Cost structure such that only room for one
• Very, very high fixed costs and low marginal co...
Natural Monopoly - Examples
Natural Monopoly
Conditions
• One firm
• Public Service
• Non-differentiated
• Significant Barriers to
entry
Implications
...
Problems with regulation
• 1. Capture Hypothesis (2014 Nobel prize winner)
• 2. Little incentive for innovation or cost-sa...
Push to Privatize
Pros
• Encourages competition
• Innovation
• Quality may increase
• Lower P & Higher Q
Cons
• Some curre...
Ways to deregulate
• Municipal provision
• By public employees
• By contract with private firm
• Private regulated
• Requi...
Cable TV
• Deregulated in 1984
• P went up, but Q went up too
• Cable providers added more channels and options
• Now mini...
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Natural monopoly & mergers hs

natural monopoloies
Published on: Mar 3, 2016
Published in: Economy & Finance      
Source: www.slideshare.net


Transcripts - Natural monopoly & mergers hs

  • 1. WHEN THE GOVERNMENT PLAYS IN THE MARKET Natural Monopolies and Antitrust Actions
  • 2. Review Markets
  • 3. What about when a monopoly means LOWER costs?
  • 4. Natural Monopoly • One firm • Cost structure such that only room for one • Very, very high fixed costs and low marginal costs • Socially desirable (usually) product or service, • Like electricity, phone, mail delivery and….internet • Legal barrier to entry • Profits and prices regulated
  • 5. Natural Monopoly - Examples
  • 6. Natural Monopoly Conditions • One firm • Public Service • Non-differentiated • Significant Barriers to entry Implications • Market Power – • No close substitutes • Universal Provision • Profits possible, but regulated
  • 7. Problems with regulation • 1. Capture Hypothesis (2014 Nobel prize winner) • 2. Little incentive for innovation or cost-savings • 3. Imperfect Market Signals
  • 8. Push to Privatize Pros • Encourages competition • Innovation • Quality may increase • Lower P & Higher Q Cons • Some current consumers will not be served • Prices may go up as lose regulation and lower ATC • Replace for “the public good” with “profit motives” • Quality may decrease
  • 9. Ways to deregulate • Municipal provision • By public employees • By contract with private firm • Private regulated • Require price limits or rate caps • Require universal service • Private unfettered • Non-profit
  • 10. Cable TV • Deregulated in 1984 • P went up, but Q went up too • Cable providers added more channels and options • Now minimal local regulation • Privatization worked.

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