Privatizing a State Run Natural Monopoly Essay -- Economics Economy Pa

A Natural Monopoly In Economics, a natural monopoly can be defined 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. The reason is that the nature of that product or service makes a single supplier more efficient than multiple, competing ones. The purpose of this essay is to discuss that the economic arguments for and against on privatizing a state run natural monopoly. You will find out on following contents. Main body --------- Natural monopolies are typically utilities such as water, electricity, and natural gas. It would be very expensive to build a second set of water and sewerage pipes in a city. Because this sort of service has a high fixed cost and a low variable cost. To prevent utilities from exploiting their monopolies with high prices, they are regulated by government sometime. Typically, they are allowed a fixed percentage of profit above cost. But this type of regulation can lead to inefficient high costs, since the monopoly is guaranteed a profit. To get around this problem, the government districts own the local utility and provide the service at cost. Another way to handle the natural monopoly is a significant shift of resources out of the state sector and into the private sector. Many governments around the world have followed this policy. For State owned monopolies across the world have proven themselves unable to invest properly in infrastructure, they provide relatively expensive and inefficient services and have poor labour re... ...ises such water supply, electricity, and telecommunications will always remain monopolistic in nature. It may not matter whether they are public or private. It is only in very large markets where there are sufficient economies of scale allowing for serious competition among privately owned utilities. Conclusion ---------- In conclusion, the arguments for privatising natural monopoly businesses are the same as for privatising any business. These monopolies usually dominate any nation's national economic efficiency, access to investment capital, innovative technology and effective management is even more important. Even after this kind of concern, we have to continue searching, through learning by doing, in order to reduce the power of monopolies on the daily lives.