ECO105Y1 Lecture Notes - Lecture 10: Natural Monopoly, State Ownership, Market Failure
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Sometimes markets fail failure to produce an efficient outcome (waste, unused outcome) O(cid:374)e (cid:449)a(cid:455) i(cid:374) (cid:449)hi(cid:272)h (cid:373)arkets (cid:373)alfu(cid:374)(cid:272)tio(cid:374) e. g. (cid:455)ou ha(cid:448)e a (cid:271)ill pro(cid:271)le(cid:373) a(cid:374)d (cid:455)ou(cid:859)re tr(cid:455)i(cid:374)g to talk to a big firm. Natural monopolies are a market-failure challenge for policymakers gain the low-cost effi(cid:272)ie(cid:374)(cid:272)(cid:455) of e(cid:272)o(cid:374)o(cid:373)ies of s(cid:272)ale, (cid:271)ut a(cid:448)oid the i(cid:374)effi(cid:272)ie(cid:374)(cid:272)ies of (cid:373)o(cid:374)opol(cid:455)(cid:859)s restri(cid:272)ted output and higher price. Your (cid:374)eigh(cid:271)orhood(cid:859)s ele(cid:272)tri(cid:272) (cid:272)o(cid:373)pa(cid:374)(cid:455) has (cid:373)o(cid:374)opol(cid:455) i(cid:374) (cid:455)our (cid:374)eigh(cid:271)orhood a(cid:374)d the govt. prevents competition. So, why: economies of scale advantages of being big. Remember that monopolies restrict output, raise prices, take consumer surplus away from consumers. Government policies for natural monopoly: public ownership (govt. running things, regulation (grant a private company monopoly, but to regulate it, neither of the above is perfect. In canada, crown corporations are an example of public ownership whereby governments run the business, a(cid:374)d the (cid:271)e(cid:374)efit is that it(cid:859)s a (cid:373)o(cid:374)opol(cid:455) i. e. you have economies of scale, no competition.
