The theory of natural monopoly is just an economic fiction. There is no such thing as a natural monopoly has ever existed. With the help of a few influential economist, and secured government sanctioned monopolies, they constructed a rationalization for their monopoly power. Since the monopolies are natural and since the nature is beneficent, therefore, government was justified in establishing good monopolies.
“The public utilities have been granted governmental franchise monopolies because they are thought to be natural monopolies." The natural monopoly is said to occur when production technology causes long run average total cost to decline while output expands. In other industries, a single producer will eventually be able to produce at a lower cost than any two other producers and that creates a natural monopoly.
Competition is said to be a cause of consumers inconvenience in buying products because it constructed a duplicate facilities. It is stated to …show more content…
“The truth is that the monopolies were created decades before the theory was formalized by intervention-minded economists, who then used the theory as an ex post rationale for government intervention. At the time when the first government franchise monopolies were being granted, the large majority of economists understood that large-scale, capital intensive production did not lead to monopoly, but was an absolutely desirable aspect of the competitive