Why do governments typically set up natural monopolies?
Understand the Problem
The question is asking why governments usually establish natural monopolies, which are markets where single suppliers are more efficient than multiple competing ones. The answer may address economic principles and public policy considerations.
Answer
To regulate access to essential services.
Governments set up natural monopolies to regulate access to essential services and prevent issues such as price gouging, ensuring that these services are provided efficiently and at reasonable prices.
Answer for screen readers
Governments set up natural monopolies to regulate access to essential services and prevent issues such as price gouging, ensuring that these services are provided efficiently and at reasonable prices.
More Information
Natural monopolies occur in industries with high start-up costs and significant barriers to entry, making it inefficient for new competitors to enter the market. Government intervention can help manage these monopolies to protect consumers from high prices and ensure reliable access to services.
Tips
A common mistake is not distinguishing between natural monopolies and other forms of monopolies which might arise from government protection without inherent industry barriers.
Sources
- Why do government allow some monopolies to exist? - quora.com
- Natural Monopoly - Economics Help - economicshelp.org
- 11.3 Regulating Natural Monopolies – Principles of Microeconomics - pressbooks.oer.hawaii.edu
