24 Antitrust Bull. 63 (1979)
Some Problems with Natural Monopoly

handle is hein.journals/antibull24 and id is 83 raw text is: The Antitrust Bulletin/Spring 1979

The theory of natural monopoly states that because of
structural conditions that exist in certain industries, competi-
tion between firms cannot endure; and, whenever these pre-
requisites exist, it is inevitable that ultimately only one firm
will survive. Electric utilities have been considered natural mo-
nopolies for many years, and this concept played an important
part in early movements to grant them monopoly status and,
in the absence of competition, subject them to regulation.
This study examines the theory of natural monopoly and
contrasts the conditions or prerequisites of the theory as ex-
pressed in the economic literature with actual structural condi-
tions of electric utility companies. Generally, the findings are
that upon close examination conditions cited as characteristic
of natural monopolies are either nonexistent or unimportant
in electric utilities even though they have been attributed to
such businesses for years. In view of the evidence presented,
the conclusion is that economists must reassess the natural
monopoly theory as it is applied to electric utilities.
There is considerable ambiguity associated with the defini-
tion of natural monopoly as Demsetz and others have
observed. The economic literature concerning natural monop-
oly presents no standard definition of the theory, and various
economists specify a different set of necessary conditions for
such a monopoly to exist. The purpose of this section is not to
summarize the literature or to redefine the theory but to pre-
sent those prerequisites of natural monopoly most frequently
cited by various economists.'
* Professor, College of Commerce & Business Administration,
University of Illinois, Urbana.
An article presently in process by the author presents an exten-
sive survey of the literature concerning the theory and a suggested
© 1979 by Federal Legal Publications, Inc.

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