Natural Monopolies: (De)Regulation

These flashcards cover key concepts related to natural monopolies and their regulation, as discussed in the lecture.

Natural Monopoly

An industry in which one firm can achieve economies of scale over the entire range of market supply.

Regulatory Dilemma

The challenges posed by regulating natural monopolies due to their unique market structure.

Average Total Cost (ATC) Curve

In natural monopolies, this curve is downward-sloping, indicating that costs decrease as output increases.

Marginal Cost (MC) Curve

In natural monopolies, this curve lies below the ATC curve at all rates of output.

Antitrust Laws

Laws designed to promote competition and prevent monopolistic practices by prohibiting mergers and anticompetitive behaviors.

Price Regulation

Government setting a maximum price for a natural monopoly to ensure consumer protection.

Profit Regulation

Setting the price equal to average total cost to eliminate profits for the monopolist.

Output Regulation

Government intervention to control the amount of output produced by a natural monopoly.

Deregulation

The process of removing government regulations, often to promote competition and decrease prices.

Cross-subsidization

Using profits from one service to subsidize the costs of another service, common in regulated industries.

Commodities

Basic goods used in commerce that are interchangeable with other goods of the same type.

Administrative Costs

Costs associated with the regulatory process, including staffing and operational expenses of regulatory bodies.

Compliance Costs

Expenses incurred by regulated industries to adhere to laws and regulations, such as reporting and adjusting operations.

Economic Profit

The difference between total revenue and total costs, including opportunity costs.

Market Failure

A situation in which market outcomes are not efficient, often due to monopolies or externalities.

Telecommunications Act of 1996

Legislation that aimed to promote competition in the telecommunications industry by mandating access to transmission networks.

California Electricity Deregulation

A policy shift that stripped utility monopolies of production capacity leading to market challenges.

Bureaucratic Opportunity Cost

The potential benefits lost due to the resources allocated to administrative functions rather than productive activities.

Imperfect Markets vs. Imperfect Intervention

The comparison between the flaws of market systems and the potential shortcomings of government regulation.

Market Structure

The organization of a market, based on the degree of competition among producers.

Costs of Regulation

Administrative, compliance, and efficiency costs that arise from implementing and maintaining regulatory frameworks.

Railroad Regulation

Government oversight of the railroad industry to ensure fair rates and services, historically through agencies like the ICC.

Cable TV Reregulation

The reintroduction of rate regulations in the cable industry following periods of deregulation.

Satellite Communications

A technology that provides alternatives to traditional cable services, enhancing competition.