Natural Monopoly and the need for Government Regulation
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- čas přidán 12. 03. 2012
- Want to learn more about economics, or just be ready for an upcoming quiz, test or end of year exam? Jason Welker is available for tutoring, IB internal assessment and extended essay support, and other services to support economics students and teachers. Learn more here! econclassroom.com/?page_id=5870
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Your videos are outstanding, especially around exam time. Thanks Jason Welker!
Thanks a lot.
One thing,it was easier for me to understand negative mc curves when we think of subsidies as the opposite of taxes.The taxes raise them up while the latter down.
By far, better than my microeconomics lectures at university.
You're a saint ! God bless you
So I am a bit confused about one thing. Diagrammatically, it seems possible for 8 different firms to make profit. It's because if you take a look at the diagram, at 6:10, we can extend the line above and the distance between the point in the ATC and the tip of the line of D can be profit. Now theoretically this shouldn't be the case. Clarification?
There is a MISTAKE in the graph - D and MR curves meet on Y axis - not anywhere else.
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GREAT VIDEO!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
FINALLY UNDERSTAND NATURAL MONO!!!!
Ok, I haven't done a deep research but I think a typical example is a railway company in a small area, like an island. The fixed costs are so big for a company like this that there's no space for two companies, and therefore, there's no competition (natural monopoly). So you have railway companies in small areas managed by the goverment.
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I'm not sure but if that's your math then I know where the other 13% went 😂😂
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The Postal Service is not a monopoly... And the federal postal service is struggling precisely because its prices are far too low to cover its operating costs. Private parcel services are generally more expensive. The elimination of the federal postal service will lead to even higher prices for parcel services as the private firms will not have to compete with the public option.
Wouldn't the private companies already put the costs as low as possible because they are competing with each other. If they went even further down then that price wouldn't they be losing money?
how is it possible that the ATC continues to decrease after the point at with the D curve reached 0?
Great video, thanks
Why does the MC curve shift by more than the amount of the subsidy you describe?
A subsidy is needed which is the difference between PxMC and the ATC, to be allocatively efficient.
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Thank you so much
I have been watching your videos for a few months now as an IB diploma candidate. I question the fact that marginal cost will shift down, while I believe that it should stay where it is at. Because the MC is the derivative of ATC. Therefore each addition of unit of output will remain the same, and so will the MC curve. Am I correct?
In order to reduce the MC I would impose a subsidy which increases as the quantity produced increases
MC is the derivative of the TC, not the ATC. Anything that lowers the per unit costs of production will reduce a firm's total costs and its marginal cost. Per unit subsidies have this effect. So would a fall in variable resource costs. A reduction in fixed costs, however, would only reduce ATC but not MC, since the cost of additional units would not fall if just a fixed cost (such as rent) decreases.
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i really like your explaination sir
Private parcel services are generally more expensive? That's funny, because if that were true, then why do most businesses such as Amazon use UPS? Certainly large companies would be seeking to minimize costs, which would mean they would be using the most efficient shipper available...UPS or FedEx. Also, the Post Office lost over $15 billion in 2012. Also, the Post Office does NOT pay taxes. It is tax exempt, not to mention it acquires almost $100 million from taxpayer money!
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FANTASTIC!
so helpful thank you
im pretty sure the examples you provided of natural monopolies exist through government regulations being an unnatural monopoly
Well, this is begging the question. Are economies of scale really all that efficient? You could internalize even more of the cost if you just bought solar panels...
How big will the monopolists profit be after regulations are imposed? If profit is the same as before, people are just paying him the monopoly price indirectly through tax money
EXCELLENT
Does economics say anything about what should be public and what should be private? For example, should the government operate hospitals and schools? Is there an economic theory for that?
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Great working
solid....just solid
Could you please explain
Dumping
Intertemporal price discrimination
Peak load Pricing
Two part tariff with one consumer and two consumer
Bundling
Reservation price
Tying
Advertising
worshiping!!
Oooh. How about oligopolies and the fact we're all screwed over by... well, a lot of oligopolies?
So, the consumers still wind up paying more because they have to subsidize the monopoly.
seinfan9 No. When you come to understand these graphs and what he is explaining, you would come to understand that the consumer in the end, ends up paying less in a regulated (i.e. natural) monopoly than if firms competed to produce the good. That is because firms competing to produce the good, would sell it at much higher prices, than what a regulated monopoly would charge, INCLUDING the added taxpayer (subsidizer's) cost of subsidies needed for the regulated monopoly to sustain producing at high prices. The regulated monopoly helps the entire economy and consumers benefit from the economies of scale that come with a monopolistic firm producing the public good (e.g. water or electricity).
Except, that environment lowers the likelihood of innovation (no competition). Said missing innovation may either be worth more money or may lower the ATC.... A Natural monopoly can't exist for long. You will always have the "freaks" that hate GMOs or Floride or big companies or saving money. These people will create demand for alternatives and a free market will fill in the void. My favorite example: Solar City vs Utilities. Sure, The federal, state and other credits make it's business larger, but if net metering didn't exist, they could still operate by selling their high dollar off grid system to the rich "freaks". This would mean there is an alternative and a natural upper limit to what the utilities could charge before loosing customers.
If water prices got to high would not businesses step in and offer creative financing for water wells or systems that condense water from the atmosphere, or truck it to your house like rural propane? Regulation assumes there is only one best way and usually slows or prevents the deployment of alternatives.
Ed Saidedi yes but how do you finance a subsidy? tax
so the taxpayer - the consumer - pays the subsidy
rain water filtration systems... oh wait that would be illegal...
The UNITED STATES Postal Service is a monopoly. What other private company distributes mail? I'm not referencing large packages and letters mailed overnight. I'm talking about small envelopes, postcards, birthday cards, etc. You have seen stamps, haven't you? Who else uses them? Nobody. The U.S. Postal Service is a monopoly. Expenses are high because the Postal Service has extremely high wages due to the governments inability to abstain from cutting back employee pensions.
In terms of everyday mail, YES the royal mail would be considered to be a natural monopoly, this is only because it'd be inefficient for other firms to start putting up postboxes in order to compete with the royal mail.
However, in terms of other delivery services like parcels and shopping it's not a natural monopoly. We've got tons of companies that provide those services in the UK.
Your lack of understanding on what Jason said, makes you a poor debater.
great vid.ignore tht johannes. he or she is crazy
My question is, " Why don't government himself run the industry instead of giving it to private organization with subsidies? "
Theoretical mumbo jumbo. If you believe this, then you fell for one of the biggest economic fallacies ever. And I don't need a bunch of theoretical graphs to explain it. It's so much more logical if you use critical thinking instead. There is no such thing as a natural monopoly. It's a fallacy. Why?
A monopoly is purportedly bad because it can exercise pricing power due to lack of competition. Even if we accept the premise of this position, in a free market the inevitable result of this behavior is more competition (someone will start another company and undercut prices). Therefore the only way to retain monopoly pricing power is to prevent competition. It’s not possible for competition to be prevented in a free market. If competition doesn’t exist, it is either because the company is not exercising its pricing power (i.e. selling at a loss or break-even, making it unattractive for competition to enter the market - and BTW, this benefits the consumer with lower prices) or because the company has no market (which would also suppress any desire to compete with it), and in either case there is no “harm” to anyone. If a company is suppressing competition by selling at a loss with the expectation that eventually it will apply its pricing power, there is nothing preventing others from executing the same strategy, and of course the strategy is short term. For example, if all the retailers in the country want to try to collude on pricing, let them. It will only last for a short time, as one of them will be able to make more money (and take more share) by breaking out of the collusion and lowering prices (same reason oil cartels don't work in the long run). There is no long term incentive to collude, and if they do, it's freedom of contract to do so, and another retailer could come in and undercut the group. Instead what happens in the long term is innovation. Note how retail went from local stores, to Wal-Mart to Amazon. Scale and service over time changed to bring prices down and service up. Many thought Wal-Mart was a "monopoly" or close to one. Then along came Amazon.
THE ONLY COMPANIES THAT EXERCISE MONOPOLY POWER ARE STATE-CREATED (the AT&T monopoly was entirely a government sponsored monopoly and had to be broken up because of lack of innovation). The force of the state physically prevents or suppresses competition and creates monopoly power (another example is the Federal Reserve - it has a monopoly on printing money and govt has granted it this power through the Federal Reserve Act). Note the Internet and companies around it are blossoming. Why? Because it's a free market with very little regulation and a lot of competition.
The first thing any successful company sees is competition from others. Any successful entrepreneur would admit to this fact. Price fixing just creates another weakness to compete against (the high price). But government interference or ineptitude can keep others from competing against the price fixing.
Many claim Standard Oil was a monopoly. It wasn't at all but it created our ridiculous anti trust law. Standard Oil was about freedom to contract, huge supply chain efficiencies that put small, inefficient producers out of business, and safer oil. See these five parts to the story of Std Oil which is very well researched:
www.masterresource.org/epstein-alex/vindicating-capitalism-standard-oil-i/
www.masterresource.org/epstein-alex/vindicating-capitalism-standard-oil-ii/
www.masterresource.org/epstein-alex/vindicating-capitalism-standard-oil-iii/
www.masterresource.org/epstein-alex/the-real-history-of-the-standard-oil-company-part-iv-pioneering-in-big-business/
www.masterresource.org/epstein-alex/capitalism-vindicated-standard-oil-part-v/
Regulation is immoral and interference by force. It is aggression against others. I also recommend the article and videos below. Note this is mostly based on logic and an understanding of human behavior, not just data and statistics. I haven't found anyone that can logically refute this position. Case closed.
Other materials:
mises.org/library/myth-natural-monopoly
ttps://mises.org/wire/capitalism-and-misunderstanding-monopoly
mises.org/library/antitrust-policy-both-harmful-and-useless
czcams.com/video/WSVR9xJ-1Vc/video.html
czcams.com/video/-q1fSNzYNhg/video.html
mises.org/library/net-neutrality-scam
mises.org/blog/ditch-net-neutrality-now
mises.org/library/peter-klein-net-neutrality-lie
mises.org/library/question-cable-monopoly
mises.org/library/why-public-utility-monopolies-fail
very well made, but we still need to answer the mumbo jumbo in exams to get marks.
@@sirsheep9547 Leftists schools are biased and don't understand this because they are statists and support big government. They love govt to go after boogie men - terrorists, drug cartels, big business, etc. It's all a distraction to tax and control others.
@@U2GuitarTutorials just a doubt. what if the govt subsidises a monopoly as stated and implements a price control just so that the concerned monopoly can then invest in RND? wouldnt that be logical? please reply asap since i quite liked ur point and would like to think over it before i forget and it appears as a 15 marker in my exam :D