Natural monopoly
As a natural monopoly, a situation referred to in the microeconomics, in which due to high fixed costs and low marginal costs particularly strong increasing returns to scale result ( subadditivity ). In this case, the total cost for the provision of a good are significantly lower if only one company and not several competing company supplies the market.
In theory, particularly public utilities, in which very high fixed costs of building a network (eg, roads, telephone, postal, energy and water supply networks ) are comparatively face low operating costs, as an example of natural monopolies. Also in the context of digitization may lead to a linearization of the costs and therefore a natural monopoly.
The natural monopoly is to be distinguished from the artificial monopoly, cartels and the legal monopoly.
- 2.1 vulnerability of natural monopolies
- 2.2 Criticism by libertarians and anarcho- capitalists
Fundamentals of the Model
Economic Theoretical Foundation
The term natural monopoly is not uniformly defined in economics. Frequently every market situation in which a single economic entity can produce a good at a lower cost than two or more economic entities is referred to as a natural monopoly. "It was already mentioned above, that there may be markets in which the long run only one provider will survive. Such natural monopolies are characterized by certain cost structures, which can be summed up under sub-additivity. By this is meant that each bid amount can be produced cost-effectively by a single company than by several companies. "
This is exactly the case when there is over the entire output range considered strict subadditivity in the cost, so a company can produce the entire quantity of goods at a lower cost than several smaller companies that produce the required amount in total. Formally, this is expressed by :, where the cost to produce the quantities that suppliers would produce; these subsets add up to the total amount.
However, this applies for many market situations, especially on the most narrow oligopolies. Even low fixed costs associated with possibly high but constant marginal costs, lead to monotonically decreasing unit costs, but what is not, or at least not necessarily, usually leads to a monopoly of the business.
In a situation of a perfectly informed (social) planner subadditive costs would have preferred a monopoly position in the event. In a real world of imperfect information and imperfect regulation possibility, however, must be weighed on the other side between the benefits of competition on the one hand and the cost disadvantages due to the presence of several companies.
The term should therefore be made more restrictive. The undisputed ( narrowest ) definition is: A natural monopoly is always present if only one firm can serve the market to cover costs.
Even if two companies could serve the market to cover costs, but it may be economically sensible to support a monopoly position when the avoided cost advantage of the competition more than compensate.
Scope
Natural monopolies are based primarily on line related supply networks, such as power lines, railways, roads, airfields and telecommunications cables. This applies to goods that are dependent in their performance to an appropriate infrastructure (electricity, gas, water, telecommunications, postal services, transport).
In the power supply, for example, the passage of current is so exclusively regarded as a natural monopoly: twice the number of power plants is more or less for the production of double amount of energy necessary. For the passage, however, the existing infrastructure ( power poles, substations, etc.) are relatively inexpensive extended to double the capacity. A provider with two lines at a power pole can offer the product cheaper than it could be two vendors with one cable per power pole. Therefore, there is an exception areas excluding the network operation for the passage and distribution of electricity, which is to separate in the so-called unbundling legally and operationally from the rest of the value chain ( generation, trading and distribution).
As a rule, will not have the characteristics of a natural monopoly of the entire industry. In the case of the provision of electricity, gas, telephone services or the web, the provision of the network is merely regarded as a natural monopoly ( one speaks of a monopolistic bottleneck, because come here many energy producers or train operators on a single network operator and therefore "narrow" is ).
In addition to the criterion of cost, the special position of the natural monopole is emphasized when, in addition, the criterion of irreversibility of costs is given in potentially new market vendors. Irreversibility occurs when a potentially new market provider must write off the value of its expenses or production factors in market exit irretrievably (so-called sunk costs ( sunk costs ) due to the high specificity of the investment).
Also the problem of natural monopoly is very strong to bear, if the market for a particular product is very manageable small. A typical example is the model railroad industry - the demand for each model is very very limited, but the models very expensive to develop. For example, a model railway manufacturer produced a particular locomotive, which devours a million euros in development costs. In contrast are 10,000 model railroaders who want to buy exactly this Lokbaureihe - a greater demand for this model, there is not. Now the million for the development must be divided by 10,000, then one arrives at a unit price of 100 euros. Will now take a rival company the same (or very similar) model in the same quality on the market, so this also needs to invest one million euro development costs. Now the 10,000 prospective divided into approximately equally between the two companies, so that every manufacturer can only sell 5,000 copies. Both manufacturers would require 200 euros for the model in order to cover their costs. That's too expensive and many customers buy neither of the two models.
Extended application
Considering a wide monopoly term basis, which includes not only the actual sole providers and providers with great market power ( quasi- monopolist ), and software vendors can be viewed with a high penetration of their software as "natural quasi- monopoly " as the application of the theory model.
With the economic development of the Internet, the importance of natural monopolies has increased. First, procurement, production and distribution are digitized goods - for example, application software or electronic services - combined with high fixed costs and low variable costs, so that dominant provider with increasing sales economies of scale and thus realize higher profits can. Second, the benefits of network goods and network services grows with the number of players on the seller and demand side, so that there are positive network effects. The more users are accessible for example via the e -mail infrastructure, the higher the total users of that infrastructure, which continuously attracts more users. On the supply side, there is a positive network effects when an established system, the production of other variants and stimulated components - such as plugins for an established browser.
Natural quasi- monopolies will now arise when it comes to positive feedback loops between economies of scale and positive network effects: Due to the ever more favorable cost structure of the dominant provider Travels arise for price reductions that attract more users, thereby increasing the overall benefit of the system, what the seller further economies of scale bestowed etc.
Examples from the internet economy for natural ( quasi- ) monopolies are the marketplace Ebay, in some countries only can exist smaller highly specialized auction provider in addition to the, the replacement of many B2B marketplaces in the "New Economy" by a few dominant market places or the software of Microsoft, which is installed on most computers worldwide. An interesting question for the near future is whether the Firefox browser due to positive network effects ( more users, more and more useful plugins ) against the hitherto all-powerful Internet Explorer is able to enforce.
Government measures as a remedy
The supply can be taken over by the state (government monopoly).
A government regulation can in regulatory requirements (eg maximum price regulation), are in a legal restriction of economic activities of the monopolist or a structural break-up of monopolistic company.
In recent times, unbundling is often used as a solution to the problem of natural monopolies. It provides network monopoly and the production process are separated in itself. Examples are water, electricity, gas and telecommunications. The network monopoly is thereby maintained as a natural monopoly and regulated by the state. Benefiting from over the network company has competitors but allow the passage of the actual products (water, electricity, gas or telecommunications) to set by a regulatory conditions.
Remedy by technical progress
Some natural monopolies eliminate However with time by itself example, has threatened former natural monopolies of railway operators, the invention of the car. Thus, the technical progress makes for sometimes a resolution of a natural monopoly. One speaks in this context of substitution competition.
Criticism
Vulnerability of natural monopolies
Following William J. Baumol's theory of contestable markets, the view is held that the existence of a natural monopoly is not a market failure, because the competition was not visible in the form of multiple vendors, but he acted in a latent manner.
Criticism by libertarians and anarcho- capitalists
In terms of the historical examples used for the existence of natural monopolies pipeline networks is put forward, that they would have incurred as a reserved and protected by the state monopoly. These government monopolies were considered by Thomas DiLorenzo only justified retrospectively economically.
The concealment of the actual reasons for government intervention show on the selection of the regulation requiring as natural monopolies goods. The state call for its exercise of power major industries as such, should only be operated by " public utilities " and justifies this alleged economic requirements, namely the theory of natural monopoly.