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Competition - post a photo you've taken of nature >>
Competition - post a photo you've taken of nature >>
Competition - post a photo you've taken of nature >>

Are natural monopolies productively efficient?

So do they produce a high level of output with minimum resources?
Not normally - they tend to be a breeding ground for complacency and bad habits leading to poor service/value for us. This is one reason we have a monopolies commission (although why we only have one such commission is another question)

Perhaps think along the lines of what the drivers are for a high level of output etc and see how they are met in a monopoly and contrast this to a predator/prey relationship of competing firms.
They benefit from very large economies of scale so you can argue that they are, although to evaluate you can say that its necessary for them to be this way as theres no other feasible method of producing output without economies of scale

As theres no competition, there's little incentive to cut cost so they may not be very productively efficient. Though to evaluate you can say that with regulation such as price capping they can be forced to be efficient
Original post by mattchaamp
They benefit from very large economies of scale so you can argue that they are, although to evaluate you can say that its necessary for them to be this way as theres no other feasible method of producing output without economies of scale

As theres no competition, there's little incentive to cut cost so they may not be very productively efficient. Though to evaluate you can say that with regulation such as price capping they can be forced to be efficient


Thanks. Could you also say they benefit from dynamic efficiency meaning they can invest into better methods of production to lower costs even more, as another advantage?
Original post by dont know it
Thanks. Could you also say they benefit from dynamic efficiency meaning they can invest into better methods of production to lower costs even more, as another advantage?


Yes it can - this argument can be used for any market that lacks competition too
Interesting about capping - you are setting an upper limit so can actually discourage efficiency beyond a certain point too because people may stop when the cap has been accommodated. I guess it could be viewed as hitting a local maxima of efficiency rather than a global maximum.
(edited 6 years ago)
Original post by mattchaamp
Yes it can - this argument can be used for any market that lacks competition too


Oh right thank you.
Original post by mattchaamp
Yes it can - this argument can be used for any market that lacks competition too


Surely it applies to any market...
Original post by TheMoreILearn...
Surely it applies to any market...


No, you can only be dynamically efficient if you make supernormal profit
Original post by mattchaamp
No, you can only be dynamically efficient if you make supernormal profit


For the benefit of the OP you should probably follow this up with your own research. Although dynamic efficiency can often be seen in situations as described by @matt they are not solely limited to them so I feel the word “only” is misleading here.

A prime example of a counter example could be Amazon - they have invested heavily in robotics to lower costs but by no means do they make supernormal profits.
Original post by TheMoreILearn...
For the benefit of the OP you should probably follow this up with your own research. Although dynamic efficiency can often be seen in situations as described by @matt they are not solely limited to them so I feel the word “only” is misleading here.

A prime example of a counter example could be Amazon - they have invested heavily in robotics to lower costs but by no means do they make supernormal profits.


But im talking about purely economic theory here. Some firms could fund dynamic efficiency through selling equity or debt for example if they wanted to

Amazon does make supernormal profits, theyre also an oligopoly if not a monopoly in some markets. Doesnt really disprove my point.

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