Talk:Natural monopoly

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[edit] Legal Prohibition of Competition

The article currently states: "Claims of natural monopoly are typically used to justify the legal prohibition of competition." I don't think this is entirely accurate. I think it is more accurate to say something like: "Claims of natural monopoly are typically used to justify allowing particular monopolies in certain industries to be exempt from anti-trust laws, in exchange for regulations which limit their profitability and practices, and for protection from competition which could be seen as unfair since they are fettered." And if an example would make this clear, "For example, telephone companies are traditionally required to provide universal service, to bring phone lines to remote rural customers, and to keep residential rates low enough so virtually anyone can afford a phone; generally, this is achieved by cross subsidies from high rates for business customers, and protection from competitors taking advantage of this opportunity."

[edit] Original Article?

the following seems to have been intended as part of the overall discussion, but as I am quite confident that I read and understand English perfectly well, and it really doesn't flow here, I'm separating it whilst cleaning up the "sectioning" of this discussion:

This was the original article. I'm not sure it jibes with my understanding of the subject, but maybe I misunderstand what's being said:

a specific case of a monopoly. It's existence is justified by the specific cost structure the monopolist, which barrs other competitors from entering he market by making it impossible for him to produce and sell his goods at a profit. A good practical example is a railway company - a competitor would have to build a second set of tracks in a specific area in order to be able to enter the market. Technically this implicates that the monopolists' long term average costs (LAC) and long term marginal costs (LMC) decrease when the output Q increases.

LA2: Either way, you should keep the pointer back to monopoly. Pointers are always useful, whether they point to related or opposite words. (I have no informed opinion on the economic theory here.)

However, I do have an uninformed opinion: I think it is an open matter of discussion whether any "natural" monopolies exist. It is very hard to do experiments on the national or continental scale, so tradition or ideology has determined what gets to be a monopoly. Radio and TV stations were governmental monopolies in most west European democracies for most of the 20th century. Each city has a municipal monopoly for street lights. Each country has a monopoly currency. Some libertarian economists might think we could handle multiple currencies, regulated by private banks, and there would be no need for a central bank. Maybe this uncertainty should be reflected in the definition.

ACoward: A natural monoploy has a exact meaning in economics and it does exist. It is a good that has the average cost curve above the marginal cost curve at the point that the demand curve intersects the marginal cost curve. If perfect competion exists, the price will be set where the marginal cost curve intersects the demand curve. Since this is below the average cost curve, in the event of perfect competion all the businesses lose money, so perfect competition cannot exist. This causes one of three possibilities: either the government takes over the market, the market dies, or the government grants a monopoly/oligarchy to some party. A classic example of this is the market for a book. If anyone can sell the book, than soon the cost will equal the marginal cost (ie. the cost of the paper) and there will be no money for the author, hence the goverment grants a monopoly of copyright.

[edit] what is and what isn't a natural monopoly

"Because the great majority of consumers have decided that its product provides the highest value (in terms of quality versus price) in comparison to competing products. Therfore, the ability of competitors to profit by offering a similar product is severely restricted without producing one that offers what those consumers gauge to be a more desirable quality/price ratio." This is not a natural monopoly, it is either branding or straight-forward competition or possibly network effect. There is nothing "natural" about a firm producing a product so good and so cheap that all other firms go bust. Its ability to do so may be founded on a natural monopoly (eg first mover advantage or natural resource control), but that case is already covered. Rd232 20:57, 28 Dec 2004 (UTC)

Look again at the definition of natural monopoly in the article. If what I presented is the reason why no other competitors are providing a like product in the marketplace, then ....that's one of the ways in which a "natural monopoly" can arise. What's the problem ..does this not fit in with the anti-business bias of the article? (RJII) Dec 28
So what you're basically saying is, a monopoly is "natural" if the government has no hand it. YOU CANNOT REDEFINE ECONOMIC TERMS TO SUIT YOUR POLITICAL POV. If you are not clear on what a natural monopoly is THEN PICK UP AN INTRO ECONOMICS TEXTBOOK, a request I believe I made to you before. Rd232 23:11, 28 Dec 2004 (UTC)
Also, look at the article for "monopoly." It distinguishes between the two kinds of monopoly --coercive, and natural. A natural monopoly is one that arises without government intervention and support. Also look in that same article where it talks about "natural monopoly." It says that "sometimes" a natural monopoly results by ...what you said. That article is pretty much on track. This one needs some work. (RJII) Dec 28
To quote in full what the article monopoly has to say about natural monopoly:

Monopolies are often distinguished based on the circumstances under which they arise; terminologies differ, but one of the most common is to distinguish natural monopoly (also known as de facto monopoly) from government-granted monopoly (also known as de jure monopoly or coercive monopoly).

This quote does NOT "distinguish... between the two kinds of monopoly --coercive, and natural." CAN YOU *&£$%! READ?? Rd232 23:11, 28 Dec 2004 (UTC)

Calm down. No need to be rude. (RJII) Dec 28
Sorry. Was about remove the above, but you've already replied to it now. Rd232 23:15, 28 Dec 2004 (UTC)
No prob. (RJII)
I have edited the above on the monopoly article to remove the reference to "coercive monopoly". Insofar as the term is used at all (not much outside wikipedia mirrors/forks), it refers to a monopoly on coercion (legitimate use of force), not natural monopoly. Rd232 23:11, 28 Dec 2004 (UTC)
Ok, I'll put it back, then. (RJII) Dec 28
.."coercive monopoly" comes up on Google 1530 times, while "de jure monopoly" comes up 446 times. Which is more popular? (government-backed monopoly comes up even less) (RJII) DEC 28
"Goverment monopoly", 54,700, "legal monopoly", 21,700. In any case, "coercive monopoly" is strongly POV, and in academic circles at least it refers to a monopoly on the use of force. Most Google hits seem to trace back either to Wikipedia/forks/mirrors or to a few US conservative websites. There is no reason to put this incorrect and misleading usage in an encyclopedia when there are more popular and more neutral terms. If you insist on having it, I will insist on describing within the article the obscurity and incorrectness of this term. Rd232 00:45, 29 Dec 2004 (UTC)
"coercive monopoly in academic circles at least it refers to a monopoly on the use of force"....not in my academic circle. (RJII) DEC 28
Aha, and what academic circle would that be? Rd232 09:51, 29 Dec 2004 (UTC)
I do insist. The Post Office example below is truly a monopoly that exists by coercion. It's literally the correct term. Coercion is exactly what is happening. Coercive monopoly may not be a politically correct term to some, since they might like to see a more euphemistic label that allows one to overlook what is happening. So go ahead and start describing. I'll be right there making sure it's neutral and correct, as usual. I'm sure it's for the best that it's out there in the open for all to see. (RJII) DEC 28
"Government monopoly" is a euphemism? Words fail me. NB The PO does not "exist by coercion", a phrase that suggests mafia tendencies. The PO monopoly exists by law, which like all laws is in the very final instance backed up by the government's monopoly of the use of legitimate coercion, a monopoly which for democratic governments is validated by elections. Calling it a "government monopoly" is standard and neutral; the term is used equally by those who approve or disapprove of the idea and of particular examples. I pause to laugh at the fact that I have to explain this to (I hope) an adult. Rd232 09:51, 29 Dec 2004 (UTC)
"Coercion" doesn't refer to "legitimate" or "illegitimate" use of force. That would be a value judgement or bias on your part. Coercive monopoly refers to a monopoly that exists as the result of coercion. For example, the U.S. Post Office is one. Law, backed by physical force, forbids competition in that arena. If you try to compete with its particular kind of service (delivering letters to mailboxes), force will be initiated against you. That's coercion. A natural monopoly on the other hand, arises and exists without coercive influence. It's the only kind of monopoly that could exist in a free market. (RJII) Dec 28
Bad writing on my part. Should have been "refers to a monopoly on use of force/coercion, usually in the sense of a legitimate monopoly on use of force, i.e. by an institution resembling government." Rd232 00:45, 29 Dec 2004 (UTC)

[edit] Article protected

I'm basically happy with the intro as it stands (the rest of the article needs expansion/development, but hasn't been the subject of dispute). Anyone else (notably RJII) please explain what's wrong with it. (And if necessary please pick up an economics textbook, because the term is well-established.) Rd232 11:56, 29 Dec 2004 (UTC)

A natural monopoly is a monopoly that isn't a government-granted monopoly. The article doesn't mention that as it stands now. And for some reason user Rd232 doesn't want to allow other ways that a natural monopoly can arise to be in the article other than the few that ways described already...such as economy of scale, excessive cost to get in, etc. I can only imagine that he has an anti-business bias, anti-market-system bias, or pro-command-economy bias. Everyone has a bias, but that shouldn't prevent information from being presented. (RJII) DEC 29

BS. I have a pro-economics bias I do not apologize for. I have a degree in economics. You? Rd232 17:14, 29 Dec 2004 (UTC)
The less you know about me the better. What kind of degree I have or don't have doesn't matter at all. Your degree is irrelevant as well. It means nothing here. (RJII) DEC 29
I'll take that as an admission that you don't suffer from anything as encumbering of your POV as actual knowledge of the topic. Rd232 21:13, 29 Dec 2004 (UTC)

"A natural monopoly is a monopoly that isn't a government-granted monopoly." This statement is

  • wrong
  • incorrect
  • not the case
  • erroneous
  • fallacious
  • not true
  • so very wrong
  • an ex-statement (Sorry, that last one's something else.)
Wow, you're very confident aren't you? I'm not so sure it's a good idea to have a discussion with someone that is so absolutely sure of himself. That says a lot. (RJII) DEC 29
Actually, I naturally over-qualify my statements. That I'm *this* confident about this says a lot. Rd232 21:13, 29 Dec 2004 (UTC)

A natural monopoly is a monopoly which arises from the cost structure of the industry (L-shaped LRAC). The things that you want to include are plain-vanilla monopoly. (Government-granted legal monopoly can exist in a natural monopoly industry - this just legally fixes what is already the case, possibly ensuring a publicly-owned monopoly; but raises dynamic issues since tech development may alter the nature of a natural monopoly over time, and a legal monopoly might prevent competition arising from this.) Rd232 17:04, 29 Dec 2004 (UTC)

I already made my case. Case closed as far as I'm concerned. (With that guy at least) (RJII) DEC 29

No, Rd232 is correct. Could you cite us a source for your view? Meelar (talk) 20:16, Dec 29, 2004 (UTC)

Sure, here's one: http://www.auburn.edu/~johnspm/gloss/index.html?http://www.auburn.edu/~johnspm/gloss/natural_monopoly.html

(RJII) DEC 29

And another: http://www.econlib.org/library/Enc/Monopoly.html (the definition is at the bottom of the article)

I'm sure you can find more on your own. A natural monopoly is one that exists naturally, meaning, not as a result of government intervention. Government intervention is frequently called in because a natural monopoly exists. (RJII) DEC 29

Those links do not support your idiosyncratic view.
  • "The main kind of monopoly that is both persistent and not caused by the government is what economists call a "natural" monopoly." (Stigler);
  • "Natural monopoly: A monopoly that does not arise from government intervention in the marketplace to protect a favored firm from competition but rather from special characteristics of the production process in the industry under the current state of technology." (Paul Johnson). Read those words carefully, think about what the article says about LRAC, and realise that a natural monopoly is based on industry cost structure (falling LRAC), and nothing else. Spelling it out: government-created monopoly and natural monopoly are different subsets of "monopoly"; there are also other subsets which fall into neither category. Capice? Rd232 20:54, 29 Dec 2004 (UTC)
I suspect that all this nonsense just derives from your wish to define government intervention as the opposite of what is natural. Rd232 20:54, 29 Dec 2004 (UTC)
Right. These articles both miss that there are monopolies which are created neither through government nor through economies of scale. Meelar (talk) 20:57, Dec 29, 2004 (UTC)
I agree. That's what my other point has been. A natural monopoly can come to be by other ways besides economies of scale. (RJII) DEC 29
No, natural monopoly refers only to monopolies that come about due to economies of scale. As your source puts it, "natural monopoly arises when there are very large 'economies of scale' relative to the existing demand for the industry's product." Meelar (talk) 21:03, Dec 29, 2004 (UTC)
Saying that a "natural monopoly arises when there are very large 'economies of scale' relative to the existing demand for the industry's product" is not the same thing as saying that "a natural monopoly *IS* a monopoly that arises..." A natural monopoly is first defined as being a monopoly that isn't the result of government intervention. Then it is described how one may arise. I am saying that that is not the only way one may arise. I am saying that those writers have overlooked other ways that a natural monopoly may come to be. I know of other ways. (RJII) DEC 29
Wow. All those poor schmucks with economics degrees and Nobel Prizes, they've overlooked otherways that a natural monopoly can come about other than (large) economies of scale. I bow before you, o Great One. Please illuminate our lives with the light of your arrogance, I mean, knowledge. Rd232 21:22, 29 Dec 2004 (UTC)
In every economics textbook I've ever read, a natural monopoly by definition comes from economies of scale. Meelar (talk) 21:11, Dec 29, 2004 (UTC)
Not in the ones I've seen, but what does that matter? Are we so insecure without our own intellectual qualifications that we have to mimic somebody else's textbook? We are writing a textbook. Wikipedia is not just about copying over all the information that's already in print. Aside from that, I do have a point. There are monopolies that do not arise out of government intervention (natural monopolies) and that do not arise out of economies of scale. What are these monopolies called? (RJII) DEC 29
Hallelujah. They're not called anything AFAIK; they're just "monopolies", which is why I earlier used the awkward placeholder 'third category'. The points you're trying to load onto the "natural monopoly" definition belong in the monopoly article. Peace? Rd232 22:03, 29 Dec 2004 (UTC)
That IS the definition. RJII is trying to change it; for reasons which, even given his POV, are frankly beyond me. At this point, if he persists in his delusion, he starts to qualify as a troll. Rd232 21:22, 29 Dec 2004 (UTC)
Well, I'm basically happy with the intro as it stands. Should we ask for unprotection, and just watch the article? Meelar (talk) 21:27, Dec 29, 2004 (UTC)
Fine by me. Maybe then we can get over this distraction and get on with developing the article (it's not exactly Featured quality). Who/where do we ask? Rd232 22:00, 29 Dec 2004 (UTC)
Don't worry about me. My vacation will be over soon, and I'll leave the full-time wikipedia editing to the unemployed, the retirees, the housewives, the escapists, and the chronically bored. Everything any of us writes here will be erased many times over so it doesn't really matter in the end. Fortunately I have better things to do. If you want something that lasts, write a book ...at least you get paid. RJII (DEC 29)

Ok, apparently mopolies which are not the result of government action, and that are not natural monopolies, are "de facto" monopolies. So, "de facto" and "natural" aren't the same thing. A natural monopoly is a type of de facto monopoly. I got this clarified in discussion in monopoly article. (RJII) DEC 29

See Talk:Monopoly for my reply. Rd232 17:37, 30 Dec 2004 (UTC)
A natural monopoly exists when a single firm is able to operate on the downward sloping portion of its long-run average total cost curve. Period. Where is all this "coercive monopoly" nonsense coming from? mydogategodshat 04:52, 31 Dec 2004 (UTC)
Exactly. "A natural monopoly is defined as a market supplied by a single firm able to operate on the downward sloping portion of its LRAC." or similar should be near the top of the article, if not the first sentence. Rd232 13:49, 31 Dec 2004 (UTC)
I think a diagram would be useful. I'll conjure up one when I have some time. mydogategodshat 00:14, 1 Jan 2005 (UTC)
Its not new years eve where I am yet, so I had time to whip up a picture. We can add this [Image:Natural monopoly 2.PNG] when the article is freed. mydogategodshat 02:41, 1 Jan 2005 (UTC)
I have added a couple of diagrams. They are only approximations. One day I will redraw them showing MC=MR price determination, but these will have to do for now. mydogategodshat 03:40, 2 Jan 2005 (UTC)

[edit] External link - Thomas DiLorenzo

What a load of pants. For example, if you're going to write an article heavily using the theory of contestable markets, you ought to use the term, and credit Baumol. (And preferably have read Shapiro's response.) And his argument about regulatory capture would never in a million years lead the man to the conclusion of doing away with the private element doing the capturing. Rd232 21:20, 2 Jan 2005 (UTC)

Having taken the time to read the thing properly (I'd only skimmed it before), I have to say I'm shocked. It's not just bad; in the way it tries to construct arguments out of nothing but hot air and misdirection, it borders on the mendacious. Even beyond that, it's just useless at making its case. It really should go; it's useless for anyone interested in the possibility that there is no such thing as natural monopoly. But (sigh) that would lead to an edit war, plus I can't find anything better in that line of thought, so never mind. Rd232 00:11, 14 Jan 2005 (UTC)
At least http://www.mises.org/journals/scholar/Sechrest7.pdf, on public goods, to take another one from that journal at random, is interesting, though not for the reason the author thinks. The examples of privateering and lighthouses (non-govt provision of public goods) are interesting: the former only works as national defence (as opposed to licenced piracy) to the extent that the privateers are blinded by patriotism to their self-interest; and the latter needs some social mechanism (ie disapproval of free riders) to avoid the tragedy of the commons the purely homo economicus free market would create. Stimulating, at least (rather than pointless and aggravating, like DiLorenzo's article). Rd232 00:47, 14 Jan 2005 (UTC)

[edit] Non-free market advocacy viewpoints

Here we have the inclusion of viewpoints such as those articulated by noted free-market champion Milton Friedman, but what about the views of people who don't ador laissez-faire capitalism? I'm not certain exactly who's views to include, but what about such figures as Marx, Lenin, or others? If we include Milton Friedman, why not some people on the other side of the coin?

-anthropophag

The whole idea of a natural monopoly is reliant on the free-market ideology, that one producer can more efficiently provide the service than multiple producers. Without the free market, it's a different idea altogether.139.78.49.160 16:11, 13 September 2006 (UTC)

[edit] On RJII's disputed paragraph

The paragraph he wishes to add contains no arguments; it is merely a statement of "we advocates of economic liberalism don't believe in natural monopoly". The way it is phrased indicates he still doesn't understand the concept of natural monopoly. He doesn't seem to have noticed that paragraphs two and three of "Existence and permanence" section contain actual arguments in favour of laissez-faire. If he wants to add empirical evidence on the existence of natural monopolies in practice; fine. If he wants to try and extract some sense from the DiLorenzo article and add it, good luck to him. But would he please stop trying to put his utterly useless paragraph in?! (See article's edit history - eg version of 17:56, 10 Jan 2005). Rd232 18:20, 10 Jan 2005 (UTC)

On the contrary, the fact that economic libertarians emphasize the instability of the natural monopoly position is a relevant fact. In general, Wikipedia articles have plenty of space, in an article about X to describe views about X and positions for whom X, or views about X, are important. For instance, our article entitled Abortion focuses chiefly on what abortion is, but it also makes mention of the fact that views on abortion are important to feminists and to Christian right-wingers.
I don't know what you're on about. The entire Existence and Persistence section is about the instability of natural monopoly - eg the canals example (long term) and contestable markets (short term); and the potential for competition for the market. If RJII wants to add arguments and/or empirical data/refs on how often natural monopolies exist in practice (eg which industries), fine. This can be done in a useful, NPOV way, without offhandedly and without justification claiming natural monopoly is invalid even in theory. Rd232 21:56, 10 Jan 2005 (UTC)
One of the positions that libertarians and laissez-faire advocates feel the need to rebut is the idea that "market failures" require government intervention. Natural monopoly is often considered a market failure. Thus, the position that natural monopoly is a temporary or unstable one is important to the laissez-faire response. This fact is worth mentioning.
The paragraph above already makes far more sense than the disputed RJII one. If you want you can put something like that in a "political significance of natural monopoly" section. Rd232 21:56, 10 Jan 2005 (UTC)
As an aside, I would appreciate it if 172 would make clear that s/he understands that using insulting language like "Randroid" to attack fellow Wikipedia editors is unacceptable behavior. By way of comparison, referring to a libertarian as a "Randroid" is about as offensive as referring to a social democrat as a "Commie" or "Bolshie", or referring to a Christian as a "fundie" or "Bible-banger". That is not where we want the discourse on Wikipedia to go. (I have also retitled this talk section to avoid insulting language.)
Moreover, when editors on one side of a debate use offensive language like this, it is very easy and understandable for editors on other sides to conclude that the offenders are biased or unwilling to collaborate usefully on an article. --FOo 19:49, 10 Jan 2005 (UTC)

There is a key difference between criticizing content and attacking a user. The former is an essential aspect of the peer editing process. It is alluded to in the disclaimer every time that a user logs on to an editing Wikipedia page. The latter is against policy. If reading criticism of one's work makes a user uncomfortable, that person will have a hard time on Wikipedia... I did not make references to any individuals in my edit summaries; so the above is a mischaracterization of my actions... Regarding the term "Randroid," I will be the first user to welcome well-read Objectivists to Wikipedia, just as I'll be the first user to embrace well-read Marxist-Leninists. Minority ideologies give Wikipedia its diversity of thought in the peer editing process which is its raison d'etre. At the same time, I will remove poorly written, content-free "Commie" and "Randroid" opinion; and that the paragraph I removed warranted removal was already thoroughly explained by Rd232. 172 22:22, 10 Jan 2005 (UTC)

Say whatever you want now. It's obvious that you're a guy who flies off the handle, especially when you see something that remotely reminds you of Ayn Rand. What is the deal, you have a problem with women philosophers or do you percieve objectivism as being a threat? And, has it ever crossed your mind that libertarianism existed long before Rand? Get a clue. Fortunately, 172, you're not the authority here. RJII 07:39, 11 Jan 2005 (UTC)

RJII, quit adding that section. It was content-free POV yesterday and it remains so today. Read Rd232's comments. 172 08:10, 11 Jan 2005 (UTC)

"Content-free"? You really make me laugh. RJII 17:07, 11 Jan 2005 (UTC)


[edit] Regulation

It strikes me actually that most of the Existence and Persistence belongs in Regulation, which should be made more systematic (noting major forms).

  • Only the disruptive technology issue (canals example) really belongs under the Existence and Persistence heading, and that could perhaps be accommodated under the Regulation option of doing nothing (wait for technology change to make the natural monopoly disappear or its effects be mitigated).
  • Competition for the market (various forms of franchising) doesn't happen without government intervention; it's a form of regulation. (Private monopolies may outsource parts of the business for efficiency reasons, but they obviously themselves remain monopolies.)
  • Common carriage-type competition (eg British Model electricity liberalisation) equally doesn't happen without government intervention; and equally can be considered a form of regulation.
  • The contestable markets argument actually doesn't apply to natural monopoly; competitors can't contest such markets when there is an incumbent (though there may be industrial users/household users differences). Only the contestable markets analogy applies, where monopolies can be contested by users complaining to government, which can institute some form of regulation (which in this context includes public ownership as a form of 'direct' regulation).

Also note

  • Competition for corporate control via the capital market (takeovers + mergers)
  • Surrogate competition ('yardstick' comparison or "benchmarking"), between geographical monopolies
  • unbundling of vertically-integrated industries can reduce the scope of natural monopoly (eg electricity liberalisation, separating generation from transmission/distribution), but at the cost of loss of economies of scope (eg electricity liberalisation).

I'm also inclined to point out to RJII that if he really believes there's no such thing as natural monopoly, perhaps he should try raising the capital to build a new water or electricity network for his home town alongside the old. He would of course be laughed all the way out of the bank. Rd232 12:46, 12 Jan 2005 (UTC)

No, you're not going to engage me into a debate about whether a natural monopoly is possible. It doesn't matter. You need to understand that this is not about me. This is about stating the position of the advocates of laissez-faire. Whether their position is correct or incorrect is irrelevant. The purpose of the paragraph is simply to document what that position is. And, the fact that you don't want people to know what that position is is highly suspect. RJII 22:57, 13 Jan 2005 (UTC)
This is an economics entry in an encylopedia. If you want to provide economics arguments against natural monopoly, fine. If you want to find some political article to put views about the creation of regulated monopolies being completely unnecessary, well and good; we can link to it from here. Unless you can find a respected economist or some economic arguments or some empirical data to back it up, what amounts to a simple of statement of "ner, I don't think it exists" is not appropriate. And saying "advocates of laisser-faire" is misleading. Other than the von Mises people, I've yet to see any attempt to deny completely the existence of natural monopoly (I was going to say "serious attempt", but the DiLorenzo effort is too pathetic to count). My point is, in the absence of any actual argument, you do need to show that this view is actually held by people other than yourself plus isolated muppets. You know how many muppets there are who go on about fractional reserve banking being a conspiracy? We don't let their views distort the relevant Wikipedia articles either, because they're patent nonsense. So I'm afraid you do need to engage in some actual debate; that's how Wikipedia works. Rd232 00:26, 14 Jan 2005 (UTC)
If you don't want extensive debate on Talk, how about you agree that the article be unprotected and let me have a go at structuring the regulation section and do some general editing, and if the result doesn't satisfy you, we can discuss your disputed paragraph again? Rd232 00:26, 14 Jan 2005 (UTC)
Go ahead and have the article unlocked. I'll just put the paragraph back in. RJII 00:34, 14 Jan 2005 (UTC)
I know you're probably feeling sore for being banned over it (I would) but how about being a tiny bit more cooperative? Even allow the possibility that the article might end up so that you'll agree your para isn't needed? Rd232 00:56, 14 Jan 2005 (UTC)
No, I'm not sore at all. I don't take it personally...rules are rules..3 reverts, whatever. So don't waste your time trying to patronize me. RJII 01:20, 14 Jan 2005 (UTC)
I was trying to express sympathy with you, as well as elicit a more helpful response, but as you say, that seems to be a waste of time. Rd232 12:39, 14 Jan 2005 (UTC)
"Other than the von Mises people, I've yet to see any attempt to deny completely the existence of natural monopoly" ... well, don't you think that the "von Mises people" (usually called the Austrian school, by the way) should have their arguments about natural monopoly represented in the article about natural monopoly? Wikipedia has a neutral point of view policy -- if you're looking for a sympathetic point of view policy (which would say that the article on natural monopoly needs to present it in the views of those who favor the idea) you should consider editing Wikinfo instead.
I said "von Mises people" because I was looking at www.vonmises.org. I don't know how widespread the viewis even amongst the Austrian school. As for whether they should "have their arguments about natural monopoly represented" - I think I've made perfectly clear that if anybody can actually come up with some arguments, then there is a place for them. 172 and I have been deleting RJII's paragraph not because we disagree with the views, but because it neither makes criticism (by presenting proper arguments) not describes critics neutrally. (Hence the shorthand description in the edit summary of "content-free POV".) NB I don't know what Wikinfo is. Rd232 16:43, 14 Jan 2005 (UTC)
I'm really concerned that you and 172 seem to be more interested in deleting things you don't like than in coming to terms with the fact that we're collaborating on an encyclopedia. That means that instead of just outright deleting contributions and insulting people (you've now added "muppet" to "content-free" and "Randroid", I see) you should consider working on integrating the disparate views into an article.
Look, given RJII's reluctance to engage in reasoned debate, it's hardly surprising that the odd insult creeps in. Sticks and stones, etc. (And in general, the insults haven't been directed at editors so much as at edits and at info sources. A fine distinction, but still.) Rd232 16:43, 14 Jan 2005 (UTC)
It seems to me this article is garishly incomplete lacking text describing the Austrian position, if that position has a lot to say about the idea of natural monopoly. I'm not an expert on Austrian economics; I just don't like seeing what looks to me like a campaign of systematic exclusion, especially one so doctrinaire that it has to reassure itself by insulting those it seeks to exclude. That's not encyclopedist behavior. --FOo 16:08, 14 Jan 2005 (UTC)
Big 'if' in that first sentence. To repeat: actual arguments are not being systematically excluded and won't be in future. And are you seriously suggesting that RJII's para was encyclopedic? Rd232 16:43, 14 Jan 2005 (UTC)
It's worth pointing out that he never made any serious attempt to address the criticisms made. He could have at least tried to NPOV it, if he didn't have more substance to add. (And there are arguments and evidence about the extent of natural monopoly in practice; but he seems too focussed on insisting that the non-argument "it might not exist at all and the concept's probably a con anyway" be included without supporting justification to go look for it.) Rd232 16:43, 14 Jan 2005 (UTC)

[edit] Page protect (again)

...shame, I was getting into the swing of adding more stuff (see ideas above). And short of doing a detailed literary criticism of RJII's disputed paragraph, I'm not sure how to get to a point where the dispute might be considered resolved. When he comes back (hopefully in a more helpful mood), perhaps he could make a suggestion as to how to proceed. Rd232 23:27, 12 Jan 2005 (UTC)

If the page is restructured to fold Existence and Persistence into a well-structured Regulation section, possibly the basic point he's trying to make could go under the option of "Doing Nothing (in the hope it turns out not to have been a natural monopoly after all)". Rd232 23:32, 12 Jan 2005 (UTC)

[edit] Problem with paragraph on software

Much of this paragraph on software appears suspect to me:

Software is often taken to be a natural monopoly, due to the high cost of making the first copy and the low cost of replication. Software patents represent an additional barrier in some jurisdictions. These factors create an average cost curve that typically decreases for any quantity greater than one. This argument has been used to justify arguments relating both to Microsoft's current personal computer software market domination, and to suggest the possibility of its replacement by a future natural monopoly of free software. However, Microsoft's dominance is largely due to network effects rather than economies of scale; the costs of production are high compared to costs of distribution, but low compared to the price the market will bear (hence Microsoft's large profits). Absent benefits for consumers from standardization, it is highly unlikely that Microsoft's share of the PC software market (90%+ for operating systems) would be so high.

Major problems: 1. The "high cost of making the first copy" is a dubious statement. Relative to distribution, yes, but this is a far cry from capital expenditures to build an airplane manufacturing plant, local utility, etc.; that's the kind of scale where this subject usually becomes potentially interesting.

2. Natural monopoly of free software?!? Not sure what the writer had in mind, but, e.g., if something like GNU were to take over all software it still wouldn't be a monopoly, due to the large number of authors. A distribution license isn't the same as a single firm.

3. As Microsoft is probably not a monopoly, not sure it belongs here, unless as an example of why market dominance isn't the same as monopoly. (If the market share doesn't tend toward 100%, if the putative monopolist cannot charge unusual prices in its marketplace, it is very unlikely that it is a monopolist. Even in consumer operating systems, Apple's continued existence, success, and profit margins are a problem for the theory that Microsoft is a monopoly. Microsoft beat out Netscape, but had to match their price -- free -- to do so. Etc.)

I have gone ahead and axed the whole paragraph; I include the original above for the convenience of anyone who sees something there that I did not, and who wants to put stuff back...

Dhochron 05:47, 16 October 2005 (UTC)

Software (at least commercial off the shelf software) is almost always a natural monopoly since making the first copy is very expensive, but the reproduction costs are generally trivial. Technically, the average cost is less than the marginal cost for all but the first copy. In general this is true for any copyrightable work that is used by more than one entity. So, the part about software being an economic natural monopoly is true. Jrincayc 16:03, 16 October 2005 (UTC)
I would argue that the persistence of competition in software sheds doubt on this. Perhaps effects other than creation and distribution costs play here. Potential examples that come to mind are customization for particular customers and improvements to existing products. For example, consider the extreme case of a customer who wants a particular refinement for a single use, and will pay for it. Clearly this is not a case of natural monopoly. Perhaps this type of effect is partly realized in mass-produced software because of different markets and via the regular release of upgrades. Dhochron 06:10, 17 October 2005 (UTC)

[edit] Inital definition is bad

In economics, a natural monopoly is a persistent situation where a single company is the only supplier of a particular kind of product or service due to the fundamental cost structure of the industry.

I disagree with this definition, mainly in that it implies that there is only one supplier. The economics definition usually referes to the fundamental cost structure making one supplier economically efficient, regardless of wether there is one supplier or not. As I understand it, only one supplier is a result of a natural monopoly, not the cause. Jrincayc 16:21, 16 October 2005 (UTC)
Good point. I have changed it to
In economics, a natural monopoly occurs when, due to the economies of scale of a particular industry, the maximum efficiency of production and distribution is realized via a single supplier.
Not sure about my wording, but as I think it is an improvement, I've put it in. Dhochron 06:17, 17 October 2005 (UTC)
Yes, that's more precise. Rd232 07:46, 17 October 2005 (UTC)

[edit] Industry with a Natual Monoply

(Requester's Note: I find the section of "Natural Monopoly", especially as it refers to electric utiity service, does not sufficiently convey the "situational" nature of a "natural monopoly", thus leaving the suggestion of inherentness and/or permanence, which is manifestly not the case in the electric services industry.)

Utilities are often considered natural monopolies. Electricity from one company may seem to be no better than electricity from another, but the total service for which customers pay consists in not only the electricity itself, but in certain characteristics of its delivery, such as reliability and power quality, as well as many customer services provided by the utility. In industries in which total costs are dominated by either the cost of a standardised commodity and/or economies of scale, a so-called natural monoply may arise. Such a natural monopoly is therefore situational and, however persistent, not necessarily permanent. A natural monopoly can persist as long as its underlying situation persists. A de facto monopoly can, in the absence of specific remediation, outlast such an underlying situation if the monopoly provider can maintain scale, or other, advantages gained during a period of "natural monopoly." During the early period of electrification, customer loads were frequently dominated by craft industries and the use of electricity for purely resistive heating and lighting applications. In that situation, all electric companies provided a product that was widely perceived as homogeneous. An immense infrastructure was also required (one that took advantage of persistent economies of scale through the early 1970's). Therefore, in order to offset the costs of the debt required by the investment, a large market share and premium was required and a natural monoply presumed. The confluence of a number of factors, but especially the continued proliferation of restructured bulk electric power markets, process industries, reactive loads (such as motors), electronic device loads, and distributed generation, has called this presumption into question. Transmission systems are, as a matter of federal law in the U.S., now susceptible to competitive development. Process industries can be very sensitive to local electric service reliability and, unike resistive loads, induction motors and electronic devices can be very sensistive to local power quality issues; these characteristics can vary significantly from one utility to another. Now that electric service infrastructure is relatively mature and distributed generation further depresses the growth of bulk power requirements and the corresponding growth of T&D capacity requirements, electric utility costs are less dominated by debt service. Trends toward the undergrounding of neighborhood electric utility conductors and the joint development of utility trenching further diminishes the cost advantage of the franchised distribution service provider over potential competitors. All together, these developments indicate that electric distribution service, while remaining both a de jure monopoly and an empirical, de facto monopoly in most places, can no longer be presumed to be a "natural" monopoly for all time. Meaningful competition may not yet be a reality in electric distribution, but it is being seriously considered by regulatory agencies with a view toward exploring its near-term potential. A.M. 03:06, 29 December 2005 (UTC)

[edit] Statement about Public Ownership (POV?)

In subsection "Public Ownership", the last paragraph says that "Typically government enterprises are much less effecient than private enterprises because of the lack of profit motive". Seems like POV a lot. Is there a strongly based argument to keep it there? Or at least an economical group that claim to be the bearer of ths opinion (and therefore should be cited as it)? --FernandoAires 19:06, 25 July 2006 (UTC)

Hmm. While I'm sure everyone can think of favorite examples where this is true, it really should be cited rather than just stated in Wikipedia's voice, yes.
(My own favorite is the U.S. Postal Service, whose monopoly on first-class letter delivery is enforced by laws that make it illegal for anyone to deliver mail for cheaper than the USPS does, or even at prices near to theirs.) --FOo 03:41, 26 July 2006 (UTC)
But this is a separate issue, driven by the desire to have a uniform nationwide price. A competitor could undercut the price for low-cost services (like mail within a city) and leave the USPS with the high-cost services to rural areas. Whether or not you think this is a good policy, it's not primarily related to efficiency. On the general issue, results of private-public comparisons have been mixed. There are more studies finding better private efficiency than those going the other way, but nothing very conclusicve JQ 12:12, 26 July 2006 (UTC)
I don't know if I need to (I'm somewhat unexperienced in talk pages), but I'll try to answer. I can think of some examples where it's true (I'm brazilian, so most of them are brazilian), such as brazilian phone companies (it would be impossible for us to have such a large amount of cell phones with our former public companies). But I can think on some examples where it's false, such as road management (since the transferring, we started to pay large amount of taxes, and have not much improvement on that). --FernandoAires 20:41, 26 July 2006 (UTC)

[edit] Some (libertarians?) believe that natural monopolies do not exist?

I marked two assertions in the current article as needing citations. They both claim that some free market advocates claim that natural monopolies do not exist. I ask for a citation because I believe none will be found. I know of no one who has ever made such a claim. The general libertarian/laissez-faire belief that I have ever encountered is that natural monopolies do exist, but only as long as they efficiently provide the relevant goods and services for the economy. If, for example, they start charging too much, then that provides incentives for others to step in and compete. --Serge 23:00, 3 August 2006 (UTC)

You're thinking of an "efficiency monopoly." A "natural monopoly" is a hypothetical situation where one firm can serve the market better than more than one. In other words, competition actually PREVENTS consumers from getting the best goods and service. That is why governments how outlawed private competition in power production, telephone, and water supply in many countries. They claim it is a "natural monopoly" then they ban competition. The Austrian school of free market economists say that it is all a fraud. There is no such thing as a natural monopoly, and that it is just an excuse to create a coercive monopoly. Economizer 23:05, 3 August 2006 (UTC)
I just noticed there is actually a source at the bottom of the article "The Myth of the Natural Monopoly" [1] Economizer 23:10, 3 August 2006 (UTC)
Looking over this article, I can see that it needs a rework. It's not very good at all. Economizer 23:29, 3 August 2006 (UTC)
If a "natural monopoly" is SIMPLY "where one firm can serve the market better than more than one", then the cited source does not claim this cannot exist. Note the definition provided there: "a natural monopoly is said to occur when production technology, such as relatively high fixed costs, causes long-run average total costs to decline as output expands." The long-run aspect is key to the claim that natural monopolies are a myth that is not captured in this article. That's why I added "permanent", but you took it out. Whether permanent or long-run is part of the definition of "natural monopoly" (as it is in DiLorenzo's paper) or whether it's added as a modifier in the myth argument, it has to be somewhere for the claim that libertarians hold that natural monopolies (in the long-run) are purely theoretical to be factual. --Serge 00:56, 4 August 2006 (UTC)
Also in the article, it says the theory holds that "Higher prices will result of more than one producer supplies the market." Austrian economists, as far as I know, don't think a natural monopoly can exist at all, short or long term. Free market economists, as well as a lot of other economists probably, define a "monopoly" as a persistent situation. A transient situation is not a monopoly, by definition. I did add in the sentence something about "non-chronic situation." Did you see that? Economizer 01:08, 4 August 2006 (UTC)
My main point is that there is a subtle but significant difference between a permanent and temporary monopoly, and it's important to be consistent in the article about whether we're using the term "natural monopoly" implying only chronic situations, or not. If we don't say that clearly on the outset, then in the part where we say the Austrians don't believe they exist, then we need to say it there. And adding a parenthetic by-the-way, "this time we're talking about chronic situation", doesn't quite cut it. I think it's obvious that natural monopolies can exist - what Austrian and others claim can't exist is an economic situation that is harmed by competition. When they say natural monopolies don't exist, they're saying "monopoly situations that are better off when competion is prohibited by force" don't exist. That's quite different from saying that the natural monopolies as currently defined in this article don't exist. --Serge 01:31, 4 August 2006 (UTC)
No true monopoly can exist without a barrier to entry. Water supply, for example, is a monopoly by law. The biggest example is AT&T. For years it had convinced lawmakers that phone services where a "natural monopoly", that allowing competition would be bad for consumers. So the government decreed that "single provider" phone services would be best. What happened after breaking up AT&T? turns out competition in phone services is actually good! who would have guessed? I guesss free market DOES work after all.... :) -- Dullfig 16:24, 7 August 2006 (UTC)

[edit] Reworking article

This article is really screwed up. I fixed the intro. The body needs a lot of work. A natural monopoly doesn't usually refer to a firm, but to an industry. It's a normative theory that says one firm ought to supply a the market rather than multiple firms, because one firm can do it with less costs to the economy. In other words, more than one firm serving the market is wasteful of resources. The Regulation section is way off base. It talks about how a monopolist would abuse his position and therefore should be regulated. That has nothing to do with natural monopoly theory. Economizer 18:01, 20 August 2006 (UTC)

Well it turns out there are two definitions of natural monopoly. That looks like one of the reasons why this article is so incoherent. It can also refer to a situation where only one firm is able to survive. That's definition is used less though. William Baumol says: "There seems to be some ambiguity in the term "natural monopoly" which is used to refer to one or both of two circumstances: a) an industry in which multifirm production is more costly than production by a monopoly (subadditivity of the cost function). b) An industry to which entrants are not "naturally" attracted, and are incapable of survival even in the absence of "predatory" measures by the monopolist (sustainability of monopoly). This article deals exclusively with the first of these concepts, leaving the issue of sustainability to other papers." (Microtheory: Applications and Origin, page 27) So maybe the article needs to be divided into two parts? Maybe there needs a "disambiguation page". Economizer 23:49, 21 August 2006 (UTC)

[edit] Suggestions?

I'm still trying to figure out how to work this article. Since there are two definitions for natural monopoly, this is really complicated. I'm thinking about calling one "Type A" and the other "Type B" or something like that. But that may be original research. Maybe the article needs to be split up into two large sections. Any suggestions out there? Economizer 03:42, 7 September 2006 (UTC)

Given that this is supposed to be an economics article, the fact that there is no depiction of the mathematics or graphs of a natural monopoly is rather telling of how incomplete this article is. Given that they both operate on the same basic premise (the one provider can more efficiently meet the needs of the market than multiple providers), the actual meat of what a natural monopoly is and how to explain it should be in the article.139.78.49.160 16:08, 13 September 2006 (UTC)

[edit] Industry with a Natural Monopoly

Since the average cost of serving customers is always decreasing, the larger firm will more efficiently serve the entire customer base.


This does not make sense to me. I have not studied economics and may be totally wrong on this but logically; utilities can and do have variable costs such as the cost of wages, hardware and most importantly fuel which will always increase over time thereby increasing the average cost of serving customers.

If this is incorrect could someone please explain it to me.

As you suspect, that is totally false. Most types of production has some economies of scale (production of additional units get cheaper) but only to a point. Generally, at some level of production, there are diseconomies of scale and additional units become costlier to produce. This is why e.g. large auto companies break up into divisions. When something gets too big, the administrative overhead becomes onerous. Hogeye 15:55, 24 September 2006 (UTC)


I see you have already changed that part of the article and what you wrote seems much more logical. Thank you for your response.

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