The Role of Competition in Natural Monopoly: Costs, Public Ownership, and Regulation

The Role of Competition in Natural Monopoly: Costs, Public Ownership, and Regulation Conventional policy for industries with very high economies of scale is to permit monopoly but to subject it to regulation or public ownership. Since the latter may not result in cost minimization, however, it is possible that competition, by forcing firms to operate at the cost frontier, may be less costly despite sacrificing some scale economies. The paper sets out the relevant analytical considerations, estimates a cost function for electric distribution utilities in the U.S., and tests for the relative costs of monopoly and duopoly utilities. Among other notable findings, it concludes that competition does indeed lower net costs. Review of Industrial Organization Springer Journals

The Role of Competition in Natural Monopoly: Costs, Public Ownership, and Regulation

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Kluwer Academic Publishers-Plenum Publishers
Copyright © 2006 by Springer
Economics; Industrial Organization; Microeconomics
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