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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

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

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Publisher
Kluwer Academic Publishers-Plenum Publishers
Copyright
Copyright © 2006 by Springer
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-006-9112-x
Publisher site
See Article on Publisher Site

Abstract

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.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Sep 12, 2006

References

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