Many see the monopoly as a hallmark of market failure. Still, historic proof suggests otherwise. In theory, we are told that growing economies of scale, associated with lower costs but at the same time burdening the costs in market entry for other and new firms, will ensure that the already established firms can continue to grow without fear about new competitors entering the market. This leads to a never-ending growing price level and lower service quality due to lack of competition, especially more so in services where there is lack of elasticity in demand (i.e., the prices going up or down don't lower or increase private consumption). And as the already-established firms become larger and larger, the possibility to enter the market is further damaged.
Critiques of Natural Monopoly Theory
Critiques of Natural Monopoly Theory
Critiques of Natural Monopoly Theory
Many see the monopoly as a hallmark of market failure. Still, historic proof suggests otherwise. In theory, we are told that growing economies of scale, associated with lower costs but at the same time burdening the costs in market entry for other and new firms, will ensure that the already established firms can continue to grow without fear about new competitors entering the market. This leads to a never-ending growing price level and lower service quality due to lack of competition, especially more so in services where there is lack of elasticity in demand (i.e., the prices going up or down don't lower or increase private consumption). And as the already-established firms become larger and larger, the possibility to enter the market is further damaged.