...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...
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...Natural Monopoly Telephones, Cable, and Broadcasting ___________________ ___________________ TM 584 Natural Monopoly: Telephones, Cable and Broadcasting We all hear the term “monopoly” before. If someone does not know a monopoly is defined as “The exclusive possession or control of the supply or trade in a commodity or service.” However a natural monopoly is a little bit different in meaning from its counterpart. In this paper we will be looking into the question: whether the government should view telephones, cable, or broadcasting as natural monopolies or not; and should they be regulated or not? A "natural monopoly" is defined in economics as an industry where the fixed cost of the capital goods is so high that it is not profitable for a second firm to enter and compete. There is a "natural" reason for this industry being a monopoly, namely that the economies of scale require one, rather than several, firms. Small-scale ownership would be less efficient. Natural monopolies are typically utilities such as water, electricity, and natural gas. It would be very costly to build a second set of water and sewerage pipes in a city. Water and gas delivery service has a high fixed cost and a low variable cost. Electricity is now being deregulated, so the generators of electric power can now compete. But the infrastructure, the wires that carry the electricity, usually remain a natural monopoly, and the various companies send their electricity through the same grid (Fred...
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...There are different types of monopolies; Waste Management (WM) is a prime example of a natural monopoly. They fall under the natural category because they have many landfills and large collection routes in almost every city I know. American citizens tend to throw away more trash than most people around the world; therefore WM is in the right business and country to make billions. Although the job seems relatively easy and aside from equipment, isn’t too hard to start up as a new business, most companies just couldn’t keep up even if they put in 110% effort. Waste Management doesn’t get much competition because it is difficult to establish properly regulated landfills and a customer base to keep up with WM and the ever-growing garbage numbers. This makes for an undisputed leader in waste services in the United States. In today’s world many people are leading companies to a more energy efficient way of life, which WM is doing a surprisingly good job by converting trash into newfound energy. While Waste Management is doing a fantastic job at a boring and stable operation, they still could pump out 7% of its trash into energy (Cardenal). In 2011 the company hauled away 92 million tons of trash, but they then stated that they could convert 100% of that trash into energy and go from a $12.3 billion revenue to more than $40 billion (Cardenal). This separates them widely from all other competition from even making a ripple in Waste Management’s tidal wave of revenues in years to come...
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...Discuss the view that monopoly power is the natural result for firms who ‘win the game’ of competition? Monopoly power or market power is the ability for a business to earn high levels of profit by being able to choose their pricing strategies in their market and being able to raise to what they want in the same market and don’t have to worry about to losing costumers if they have true monopoly power then price still shouldn’t effect there demand. Being a monopoly means they are the only supplier in that market. They are able to keep their prices high for a sustainable amount of time. There are only certain companies that are able to higher prices for measurable periods of time these companies have little or no competition in the market so that by increasing the prices wouldn’t mean a loss of costumers and income because there is no competition in there market. It lies at one end of the spectrum of perfect competition it means that there is only one seller in that market that they are able to be the dominant firm and exert a considerable amount of power. (William J. Baumol EconomicsPrinciplesP264-269) There are no preliminary assumptions about the bargaining power of any of the players, and, in particular, no player is assumed a priori to have any price setting power. Provide general core results for monopoly, and their results suggest the following conclusions. First, if the seller has the capacity to supply all of the buyers, the outcome is almost completely...
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...Microeconomics Unit 4 IP Pure, Per Se, and Natural Monopolies September 16, 2012 Krugman stated, “Externalities are actions that create side effects that are not properly taken into account. Externalities are one of the principal sources of market failure” (p.434). Two policies that can be used to reduce the total amount of emissions is emission taxes and tradable permits. Krugman stated, “Emissions tax is a tax that is charged depending on the amount of pollution a factory produces” (p.442). Factories are taxed on every unit of pollution produced. The benefit of charging an emission tax is you are giving the factory reason to reduce pollution. They are paying for or being taxed for every unit of pollution they produce. The factory can impose the tax on the consumer, which in turn will decrease supply. When prices are increased, the market quantity or quantity being produced is decreased. Emission tax will decrease the marginal social cost because less pollution will be released. That leaves less cost to the society to clean it up. The marginal social benefit on the other hand will increase because the marginal social cost is decreased. The marginal social benefit is increased because of the money that the society is saved from decrease in the marginal social cost. Therefore, creating the optimal level of pollution. Emissions tax helps to solve the problem of economic inefficiency by allowing...
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...A WATER UTILITY CONCESSIONER PORTERS FIVE FORCES ANALYSIS 1. Rivalry among existing competitors- Low to Non-Existent. Since it is under concession agreement, there is no other water utility company that can engage any business similar to A Water Utility concessioner, unless granted by the government under special agreement and with full knowledge and approval of A Water Utility concessioner. 2. Threat of new entrants- Low to Non-Existent. Companies that may want to apply for the concession must first comply with government requirements and also must have a substantial amount of capital investment (around 6 Billion Dollars starting capital), not to mention the technical expertise to run and maintain a water utility company. 3. Bargaining Power of Supplier- Medium. Although the primary raw material of A Water Utility concessioner is water which is basically free, the materials used for distribution line maintenance and expansion are quite few. Though this is the case, A Water Utility concessioner still has a slight control on the pricing of these materials unless the raw materials for these items like resin, steel, alum coagulating chemical used in treating raw water), etc. increases. 4. Bargaining Power of Customer- Medium. This is due to the regulated tariff by the government under the MWSS Regulatory office which deals directly with A Water Utility concessioner.\ 5. Threat of Substitute- Low. The small water refilling stations also get their...
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...The last three decades have witnessed unprecedented growth in network industries such as video games, computers, credit cards, media, social networking and telecommunications. (Ramon and Francisco, 2009, p.1) The aim of this essay is to provide an understanding of the dynamics of platform completion by analyzing the role of installed base, consumer expectations and platform quality. These factors then help explain a platform’s position, the barriers to entry and the formation of a monopoly in the network market. This essay also focuses on the social media market for Facebook and Google+ and their rise to platform leadership, which is interesting as this is a recent and fascinating new area of research in economics. The remaining of this essay is organized into 3 sections. Section 2 explains the concept of network externalities, differentiates between direct and indirect network externalities, and explains the role of installed base and consumer expectations for products in the network market. The section then goes on to apply these concepts to platform markets to understand platform competition and how using the concept of critical mass a platform rises to dominance. Section 3 discusses some key business strategies applicable to platform markets. Section 4 concludes the analysis by extending a few strategy proposals as to how Google+ may possibly dominate in the social media market, where Facebook is currently dominant. Section 2: Products such as eBay are substantially...
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...San Diego Water and Sewage Customers Affected by Glitches in the Billing System KTC COMM/215 November 1, 2011 Pamela J. McGlynn San Diego Water and Sewage Customers Affected by Glitches in the Billing System The recent 24 million dollar upgrade to the San Diego water and sewage billing system is not performing as planned. The new billing system errors are occurring in customer billing rates, water and sewage service, and customer service response. In July 2011 the City of San Diego Public Utilities Department upgraded the water and sewage billing system at a cost of 24 million dollars. This billing system serves San Diego and the surrounding metropolitan areas, and has not performed satisfactorily,” in fact”, as of today; thousands of customers cannot log into the billing system whereas others are experiencing interruptions in their water service. It takes a few days up to two weeks to process mailed in payments. The system is back logged, and response times are very slow with customers waiting hours or days before receiving a response. The water and sewage billing system, is overseen by the City of San Diego Utilities Department. The Utilities department has been deluged with both calls and e-mails complaining about the situation. This increase in customer service complaints is forcing the department to hire new employees and also to have current employees working nights and weekends to respond to the increased workload. These employees, both new and current can...
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...Case Study: Public Trustee & Competition in Cable & Broadcasting Natural Monopoly Professor: David Olson Student: Giovanni Navas Jan 15, 2012 Telecommunications Law and Regulation TM584 What is a Natural Monopoly? The Natural Monopoly figure surge as an implicit regulation to control the market and beneficiate consumers from service or product providers. In essence, a Natural Monopoly surges when a provider is able to supply the products or services the customers demand without intervention of any other firm, and allowing another provider to facilitate the same products or services wouldn’t be beneficial for the consumer. The Natural Monopoly figure exists because when a company invests money in a product or service, it expects to generate any kind of revenue on the investment, some of these products and services require large amounts of money to be developed and deployed; In order for these providers to succeed in their business plan, they have to be efficient in the processes to deliver their final product or service to the consumer, always taking in consideration the ROI or Return of Investment. Based on this concept that companies need to recover their return of investment, we can conclude that if company X can have a large portfolio of customers, it’s return of investment is going to be reached faster than if it has a second provider supplying the same service and trying to accomplish the same objective. Having a scenario like the one previously...
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...------------------------------------------------- Monopoly From Wikipedia, the free encyclopedia This article is about the economic term. For the board game, see Monopoly (game). For other uses, seeMonopoly (disambiguation). "I Like a Little Competition"—J. P. Morgan by Art Young. Cartoon relating to the answer J. P. Morgan gave when asked whether he disliked competition at the Pujo Committee.[1] A monopoly (from Greek monos μόνος (alone or single) + polein πωλεῖν (to sell)) exists when a specific person or enterprise is the only supplier of a particular commodity (this contrasts with a monopsony which relates to a single entity's control of a market to purchase a good or service, and with oligopoly which consists of a few entities dominating an industry).[2]Monopolies are thus characterized by a lack of economic competition to produce the good or service and a lack of viable substitute goods.[3] The verb "monopolise" refers to the process by which a company gains the ability to raise prices or exclude competitors. In economics, a monopoly is a single seller. In law, a monopoly is a business entity that has significant market power, that is, the power to charge high prices.[4] Although monopolies may be big businesses, size is not a characteristic of a monopoly. A small business may still have the power to raise prices in a small industry (or market).[4] A monopoly is distinguished from a monopsony, in which there is only one buyer of a product or service; a monopoly may also have monopsony control...
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...Market Structure and Maximizing Profits There are four structures that exist within a market. These four are perfect competition, monopolistic competition, monopoly, and oligopoly. I will explain each market structure, and define what they are. I will also discuss how each structure works, and how each form maximizes the companies’ profits. I will also explain how to find the maximum possible price for an object before the company will start to lose money. If the company is not making a profit the company may go bankrupt. The company must pay attention to its market structure along with its own profit margins. The following are some characteristics of a company’s market structure. “These characteristics are: (a) number of firms in the market, (b) control over the price of the relevant product, (c) type of the product sold in the market, (d) barriers to new firms entering the market, and (e) existence of non-price competition in the market” (Sahu, pg.1, 2010) By determining how many companies are in a specific market you can determine the amount of competition there is producing the same product. What the product is will determine if the item is being supplied in a competitive market structure or a monopoly. This will also determine the amount of profits made by the company on the item. There are a few barriers that can hinder a company from entering a market. These barriers are product availability, ownership, patents, and if the company owns the items original location...
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...government actions designed to prevent monopoly and promote competition. On June 23, 2011, the U.S. Federal Trade Commission initiated an antitrust probe into Google, the world’s largest search engine. FTC’s investigation entailed a broad probe into Google’s business practices and weather it was abusing its search power to drive traffic to its own properties over rival sites and services. After a nearly twenty month high-profile investigation, the federal government announced on January 3, 2013, that its dropping an “exhaustive” probe into Google as it found no evidence the company was abusing its search power. Google was investigated under violating the Sherman antitrust act. “The definitive antitrust statute, passed by Congress in 1890, that prohibits monopolies or unreasonable combinations of companies to restrict or in any way control interstate commerce. Specifically outlawed is two or more persons engaging in monopolistic practices, such as price fixing, although it does not outlaw price-fixing per se. It was amended in 1914 by the Clayton Act, which outlaws interlocking directorates and deals with acquisitions that aim to restrain or eliminate competition. (Your Dictionary Law)” “For example, one element of a duty-to-deal claim under the Sherman Act is proving that Google’s treatment of rival websites harms consumers; even the cleverest economist would be stumped with that assignment. (Singer, 2012)” The Sherman Act prohibits monopolies, attempts to monopolize, or conspiracies...
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...Chapter 11 Price-Searcher Markets with High Entry Barriers Questions 1 through 10 are a suggested chapter quiz. 1. When economists talk about a barrier to entry, they are referring to a. a factor that makes it difficult for potential competitors to enter a market. b. the opportunity cost of equity capital that is incurred by a firm producing at minimum total cost. c. the downward-sloping portion of the long-run average total cost curve. d. the declining output experienced as additional units of a variable input are used with a given amount of a fixed input. 2. A monopolist will maximize profits by a. setting the price at the level that will maximize per-unit profit. b. producing the output where marginal revenue equals total cost and charging a price along the demand curve. c. selling at the price on the demand curve at the output rate where marginal revenue equals marginal cost. d. producing at the output rate where price equals marginal cost. 3. Which one of the following is the best description of a monopolist? a. a firm that produces a single product b. a firm that is the sole producer of a narrowly defined product class, such as yellow, grade-A butter produced in Jackson County, Wisconsin c. a firm that is the sole producer of a product for which there are no good substitutes in a market with high barriers to entry d. a firm that is large relative to...
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...This prevents producers that high unit costs from remaining in the industry as the market price is driven down by their competition. (Riley, n.d.) In order for a long-term perfect competition to be able to sustain its optimal level all of the characteristics must hold steady, not only in their own market, but in related markets as well. (Riley, n.d.) According to most studies the only areas that approximate this theory are the buyers and sellers in some auction-type markets like commodities or some financial assets In any market there is the potential for a monopoly. A monopoly is when one company or firm has the entire market share. For example all widgets are sold by a single manufacturer. There are different reasons and ways that a monopoly can be formed. “A natural monopoly is an industry in which a single firm can produce at a lower cost than can two or more firms” (Colander, 2013). The government can create a monopoly by using laws to restrict...
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...Running Head: ECONOMICS ESSAY III 1 Economics Essay III Task: Write an essay that describes the relationship between regulation and market structures and how regulations affects the market. A Define Industrial Regulation Explain why industrial regulation exists, how it affects the market, provide entities affected by industrial regulation in terms of market structure, and why industrial regulation affects those entities. Economic regulation is a form of government intervention designed to influence the behavior of firms and individuals in the private sector (Econ Guru Web). Other forms include public expenditures, taxes, government ownership, loans and loan guarantees, tax expenditures, equity interests in private companies and moral suasion. It is the imposition of rules by a government, backed by the use of penalties, that are intended specifically to modify the economic behavior of individuals and firms in the private sector, regulation in general is aimed at narrowing choices in certain areas, including prices (airline fares, minimum wages, certain agricultural products, telephone rates), supply (broadcasting licenses, occupational licensing, agricultural production quotas, pipeline certificates "of public convenience and necessity"), rate of return (public utilities, pipelines), disclosure of information (securities prospectuses, content labeling), methods ECONOMICS ESSAY III 2 of production (effluent standards, worker health and...
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