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Comment by tc | Hacker News Reader

Please identify whether a "sweetheart municipal franchise agreement" is a "natural monopoly" or a "coercive monopoly."

http://en.wikipedia.org/wiki/Coercive_monopoly

[Edited]

I didn't have to read the Wikipedia page. I linked to it for your benefit because you were degrading someone's comment when they were using a term that anyone with any exposure to economics would be familiar with.

I don't want to quibble about this forever, but you're still missing my point. I said there wasn't anything natural about a government-granted monopoly because government-granted monopolies are not "natural monopolies" (in the academic economic sense of the phrase). I asked if you read the WP page because I felt that if you had, and had read my comment as well, that it would be clear to you that was my point.

You need to go read the section under Regulation. Often natural monopolies do arise in participation with the government.

The section you reference deals with regulation as a solution to mitigating the perceived harms of an existing natural monopoly.

Yes, but they are allowed to continue to exist under government scrutiny. Most local utilities are set up this way. If you're the first there, you usually get to be the only supplier.

We're quibbling about terms, and I always fear at this point in a thread that the need to be right might overwhelm continued reading comprehension. But in economic parlance, if (let's say) a power company came to be a dominant monopoly in a given area without government support, that would be a natural monopoly. If the government then stepped in to regulate the power company as a utility and simultaneously excluded competitors by government force, the power company becomes a coercive monopoly. Is it still a natural monopoly? It's hard to say, because conditions change, but the government grant of exclusivity remains constant. Maybe a new technological innovation would have let a competitor emerge, breaking the natural monopoly. But we would never know as long as the government continued to exclude competitors by force of law.

We may just be disagreeing to disagree at this point. I'll let you have the last word here.

But we would never know as long as the government enforced the coercive monopoly.

This is a one-sided description and a false dichotomy. A non-regulated natural monopoly can be just as suppressive as a government enforced-coercive monopoly. A regulated natural monopoly does not also require the creation of a government-enforced coercive monopoly.

Please provide an example of where this has ever been the case. That is, where a company without a government grant of exclusivity (or other sorts of government favoritism) in a market has been able to 1) sustain that monopoly for more than a few years, and 2) to leave their customers worse off than if the business had never existed in the first place.

http://en.wikipedia.org/wiki/Natural_monopoly#Historical_exa...

That example discusses a naturally competitive situation and how that wasn't apparently optimal. No one was worse off for the companies existing, and they weren't even monopolies, making it irrelevant to our discussion here. The example claims society was better off when the government established monopolies that could be profitable. The government could have done that at any time -- the existing private companies didn't provide any impediment to that. So that's all fine and good, but how does that answer my question? I'll let you have the last word.

Clearly you didn't read it closely enough. They were worse off for the lack of an affordable water supply leading to a lack of sanitation and epidemic.

The inefficient private solution stayed the adoption of a publicly administered one.

Does this break the record for most nested comments?

You're right about reading comprehension degrading. So I'll spell this out simply. When Local Power Company establishes a regional power grid, they are the largest by virtue of being the first. Economies of scale prevent other firms from coming into the market. They would have to build an entirely separate, but redundant, power grid without any indication that customers, who need power to begin with, would purchase from them. This means they have, as the Wikipedia page reads, "an overwhelming cost advantage over other actual or POTENTIAL competitors." (Emphasis mine) This is why the government often steps in and legalizes the natural monopoly.

Both. The first market entrant has "... an overwhelming cost advantage over other actual or potential competitors".

Municipalities also have natural incentives to provide sweet-heart franchise agreements -- it's generally too expensive to do otherwise once the infrastructure is in place, often partially subsidized.

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