Why do governments regulate natural monopolies?
Understand the Problem
The question is asking about the reasons behind government regulation of natural monopolies, which typically arise in industries where high infrastructure costs and other barriers to entry prevent competition. The answer will likely discuss the need to control prices and ensure fair access to necessary services.
Answer
Governments regulate natural monopolies to protect consumers from exploitation and misuse of market power.
Governments regulate natural monopolies to protect consumers from potential exploitation, such as overpricing, and to ensure that the monopolies do not misuse their market power.
Answer for screen readers
Governments regulate natural monopolies to protect consumers from potential exploitation, such as overpricing, and to ensure that the monopolies do not misuse their market power.
More Information
Natural monopolies occur in industries where high fixed costs and other barriers to entry make competition impractical. Examples include utilities like water and electricity.
Tips
A common mistake is to think that monopolies are regulated to simply control profits, but the primary reason is consumer protection.
Sources
- Natural Monopoly - Economics Help - economicshelp.org
- 11.3 Regulating Natural Monopolies – Principles of Microeconomics - pressbooks.oer.hawaii.edu
- Investopedia on Natural Monopoly - investopedia.com
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