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Natural Monopoly

The term “Natural monopoly” is linked with a special type of monopoly which arises

because starting up a new business which requires huge fixed cost of infrastructure to supply

output to consumers. In these type of monopolies fixed cost restricts entry and exist in the

market. Entry of new rival in market results in decrease in efficiency. Efficiency loss occurs

because new entrant require to set up an additional infrastructure[ CITATION Sha83 \l 1033 ]. This

paper is based on railway as natural monopoly. It has many characteristics like economy of scale,

in this type of monopoly economy of scale cannot be achieved until organization or natural

monopoly satisfies large size of their market. This characteristics restricts new entrants in

market.

Regular syndications have a tendency to happen in situations where capital expenses

prevail. It is exceptionally lavish to manufacture transmission systems (water/gas pipelines,

power and phone lines); hence, it is improbable that a potential contender would be ready to

make the capital speculation expected to try and enter the monopolist's business.

Each government tries to regulate the natural monopolies because it would exploit the

rights of customers, so they want government to regulate in order to protect right of customers.

Basic contentions for regulation incorporate the craving to utmost an organization's possibly
damaging or unjustifiable business sector force, encourage rivalry, advance speculation or

framework extension, or balance out businesses. As a rule, however, regulation happens when

the legislature accepts that the administrator, left to his own particular gadgets, would act in a

manner that is in spite of general society interest[ CITATION Ber89 \l 1033 ]. In a few nations an

early answer for this apparent issue was government procurement of, for instance, a utility

administration. In any case, this methodology raised its own issues.

Natural monopolies can cause potential costs to consumers, if the monopoly is headed by

the govt. then they can maintain low prices, if they are owned by private firms than price of

goods or output will be high and fewer customer will afford that product or service.
 Works Cited

Berg, Sanford V. and John Tschirhart. Natural monopoly regulation. Cambridge Books, 1989.

Sharkey, William W. The theory of natural monopoly. Cambridge Books, 1983.