Core References

• Understanding Regulation: Theory, Strategy, and Practice New York: Oxford University Press, 1999, Chapter 15. Baldwin, Robert, and Martin Cave

  Explains cost-based definition of a natural monopoly that produces a single product. Provides practical illustrations and describes pricing implications.

• Fundamentals of Economic Regulation Working Paper 03-17, Public Utility Research Center, University of Florida, 2003. Berg, Sanford V

  Explains that an industry is a natural monopoly if a single firm can serve the market at a lower cost than multiple firms.

• Methods for Increasing Competition in Telecommunications Markets University of Florida, Department of Economics, PURC Working Paper, 2008. Jamison, Mark A.

  Explains economics of vertical and horizontal market structure, with emphasis on telecommunications markets.

• The Economics of Regulation: Principles and Institutions Cambridge, MA: MIT Press, 1988, Reissue Edition, Chapter 4. Kahn, Alfred

  Explains that natural monopoly is a situation where the potential economies of scale in an industry are so pervasive that the best way to take advantage of them is to have one firm serve the entire market. Further states that it may be that these economies of scale are not achieved efficiently; rather, they may result from imperfect regulation or a lack of incentives for the firm to operate efficiently.

• Principles of Transport Economics North Hampton, Massachusetts: Edward Elgar Publishing Company, 2004. Quinet, Emile and Roger Vickerman

  Discusses the causes of natural monopolies in transport – economies of scale and scope, network economics and the need for expensive and lumpy infrastructure. Issues addressed include geographical fragmentation, horizontal separation and vertical separation. Explains the role of competition as a means of control of monopoly. Topics included are fringe competition, comparison competition and conditions of network access.

Other References

• Cross-Subsidization: Pricing in Public Enterprises American Economic Review 65: 1975, pp. 966-977. Faulhaber, G.

  Seminal paper on cost-based definition of natural monopoly for a multi-product firm. Uses technical economics.

• Cross-subsidization: Pricing in Public Enterprises in The Political Economy of Privatization and Deregulation edited by Elizabeth E. Bailey and Janet Rothenberg. Brookfield, VT: Elgar, 1995, pp. 233-244. Faulhaber, G.R.

  Less technical paper on cost-based definition of natural monopoly for a multi-product firm.

• Industry Structure and Pricing: The New Rivalry in Infrastructure Norwell, MA: Kluwer, 1999, Chapter 3. Jamison, Mark A.

  Supplements Faulhaber’s work with the idea that firms from other markets may be able to enter the monopoly market and compete for at least some of the customers.

Key Words

Monopoly, Natural Monopoly, Economies of Scale, Economies of Scope, Cost Subadditivity