Where to start with the chronicling of this decline is hard to decide. It would be easy to begin with privatisation. That undermined the cohesion of the supply of essential public services, almost all of which are natural monopolies.

The grid is a natural monopoly. So are water and sewage pipes. Other than that it’s difficult to think of natural monopolies out there. Maybe someone can come up with others.

BA? British Steel? The ports? Amersham? Electricity generators? Schools – not that enough privatisation has been done there.

Seriously, where does he get these ideas from?

22 thoughts on “Are they?”

  1. The administration of justice is a natural monopoly.
    Or seeing as what the ecoloons get away with by citing European Human Rights, maybe not.

  2. The railways should probably make the list somewhere. Seems to be enough of a natural monopoly issue there that we’ve struggled to get the structure of them right. Doesn’t mean, as with water, or indeed rail pre-WW2, that you couldn’t have multiple private companies running the network – but it certainly takes some thought to get it right.

  3. No monopoly should exist if somebody else can do it better for less. If monopoly is bad, which it is, government monopoly is bad too. Murphy’s fear is that someone will make a profit out of it. Mine is that they won’t.

  4. It’s not so much Capt Potato having ideas as parrotting the received wisdom of extreme leftists.

  5. Various online services are interesting cases. They’re not textbook monopolies because anyone can get online and provide a service, so theoretically we have an almost perfect free market. However, things like social media have network effects involved, so the largest in any field becomes a de facto monopoly for as long as they don’t screw up royally (I’m thinking Alta Vista as a past example, FaceBook as a possible future one). I don’t think any government has a clue what to do about this.

    Maybe legally mandated interoperability requirements are the way to go, but I can’t see any government being able to get legislation for that right. Either we’d end up with easily circumvented laws too loose to be meaningful, or over strict technical requirements similar to requiring instant messaging to interoperate via Morse code.

  6. The grid is a natural monopoly. So are water and sewage pipes.

    Presumably sufficiently different to account for the differing payment structures. You can buy energy from anyone who can get a license to sell across the grid, but your mains water and sewage is from a single geographic private entity.

  7. What I find comical (Among so many gems) is that he rejects so many precepts of ‘conventional’ or ‘neoliberal’ economics yet the precept of ‘natural monopolies’ is of course completely acceptable to his naturally authoritarian mind. As the great TMB points out – if he had an original thought his head (already swollen from the acclaim of people arguably even more moronic than him!) would explode.

  8. I’m not sure those are actually natural monopolies – if they were they would not need government intervention to control competitors (and this justify government control of the utility).

    Yes, it would be inconvenient to have multiple provider building duplicate infrastructure – which is why they would, IMO, naturally come to infrastructure sharing agreements. As has happened in places where utilities have been de-regulated.

    I’m not sure ‘natural monopolies’ actually exist in real life.

  9. The railways should probably make the list somewhere.

    Japan’s railways are privately owned and excellent at all levels.

  10. Most American railroads are private too.

    Started out with duplicating tracks and everything, Eventually came around to track sharing agreements.

  11. @Agammamon @MC

    Natural monopolies clearly do exist. The issue is what you do about them. Just because something is a natural monopoly doesn’t mean it has to be publicly owned, and the fact something can be done successfully in the private sector isn’t a proof that it wasn’t a natural monopoly in the first place. It’s just a boring technical term for a situation where the most economically efficient number of firms is one, due to economies of scale or scope ensuring that it would cost less for one company to produce the total output than it would if multiple firms shared responsibility for the output between them.

    Having two rival electricity grids or two water suppliers in the same municipal area is something that’s largely gone the way of the dodo because it just doesn’t make sense to arrange things that way. You can still have utilities in private hands but if they do form a natural monopoly and lack competition they tend to get regulated accordingly. Private railways are actually another good example of this, with regulation over track access rights or passenger pricing.

    Here’s a paper by Russell Pitman about competition issues in ports and railways that considers the natural monopoly issue: https://www.justice.gov/atr/competition-issues-restructuring-ports-and-railways-including-brief-consideration-these-sectors

    As globalization deepens, and the transport and communications sectors continue the remarkable increases in productivity that have shrunk time and space in the economic world, governments are discovering that they can no longer afford the luxury of allowing inefficient, state-owned infrastructure providers to serve more as employers of last resort than as facilitators of international competitiveness.

    One frequently chosen strategy for improvement has been the introduction of private sector participation in the formerly state-only infrastructure sectors. This strategy has involved not only outright privatization of existing state-owned enterprises – whether through sale or long-term franchise – but also public-private partnerships for enterprise operation and improvement, and the tendering to private companies of the right to build new facilities that may or may not transfer later to state ownership – i.e., build-own-operate, build-operate-transfer, and variations thereto.

    A second strategy, complementary to the introduction of private sector participation and arguably even more important, has been the creation of competition in order to improve the incentives for the efficient operation of the infrastructure enterprise regardless of its ownership.

    But how is competition to be created in the infrastructure sectors of the economy? Often these sectors are characterized by capital stocks of sufficiently high fixed and sunk costs that their economies of scale are not exhausted at existing and forecast levels of demand, rendering complete duplication potentially costly and inefficient. The traditional responses of either government ownership or close government regulation may be responsible for the inefficiency that new policies seek to address.

    Economists and policymakers have responded to this conundrum with three broad categories of solutions:

    1. Separate the “natural monopoly” portions of a sector from those activities that may be efficiently opened up to competition. Continue some sort of regulation of the natural monopoly portions – for example, the price of access – while allowing competition to replace regulation for the remaining activities. The paradigmatic example of this strategy is the breakup of AT&T as the result of an antitrust suit brought by the U.S. Department of Justice (Brennan, 1987), but there are multiple other examples worldwide in multiple other sectors, including railways, electricity, and natural gas (Newbery, 1999). An important detail is whether the “separation” is to be complete or only to require increased transparency of operations within an enterprise that remains vertically integrated (Pittman, 2003).

    2. Where the economies of scale in the capital stock either have been reduced by technical change (telecoms) or persist with some aspects of scale but not others (railways), seek innovative ways to create competition among vertically integrated providers. In telecoms, to the degree that an increasing number of customers are content to rely on mobile rather than fixed wire service, there may be little need to worry about access conditions to the “natural monopoly” fixed wire grid in the future (Laffont and Tirole, 2000; Sung and Lee, 2002). In railways, where economies of system size are typically exhausted before economies of density (Savignat and Nash, 1999), most of the countries in the Americas have chosen to rely upon competition among integrated providers competing at common points rather than seeking vertical restructuring and access by competing train operating companies to a common track (Pittman, 2007a).

    3. Finally, some have urged renewed and more strenuous attempts to achieve efficient operations within the traditional context of government ownership or government regulation. The huge literature on “incentive regulation” has constituted a spirited attempt to correct some of the well documented flaws of older systems of regulation without jettisoning regulation altogether (Laffont and Tirole, 2000). Closer to home, the Indian Railways achieved remarkable improvements in efficiency in the 2004-2007 period without relying on either competition or privatization (Kumar and Mehrotra, 2009; Thompson, 2009).

    Increasingly, as well, economists and policymakers have recognized that competition may take unexpected forms and appear in unexpected places, such that the competitive restructuring of a particular natural monopoly sector may not be required for customers to be protected from monopoly. (Another way of saying this is that sometimes a “natural monopoly” has no monopoly power.) Railways face competition from motor or water carriers for many commodities. Cable television providers are increasingly offering telecommunications services, as are internet service providers; correspondingly, telecommunications services providers have begun offering cable television services. As we will discuss below, it may be inefficient and unnecessary to create competition among terminals within a single port if there is competition between ports.

    What is required for an informed discussion of restructuring options for these historically monopolistic sectors is a close analysis of the structure of particular markets, using the same tools as those used by competition law enforcers: a careful evaluation of the existing competitive situation and the likely competitive implications of contemplated future arrangements. In the case of ports and railways, as with other infrastructure sectors considered for restructuring, this analysis must in addition acknowledge the “systems” nature of the services provided and hence of the choices available to purchasers.

    In particular, when a customer uses a “system” made up of complementary components to perform a certain function – a laptop computer or a video game, but also a national or international freight transportation chain – it is not always clear whether competition is most efficiently and effectively provided by competition among producers of individual components of the chain – the computer itself, particular peripheral components, particular types of software – or among vertically integrated suppliers of the entire chain. This is the IBM vs. Apple model of the provision of personal computer services, but it is also the American vs. European model of the provision of freight railway services, as we will discuss below. Which model is most effective at protecting customers from monopoly abuses is likely to depend on the facts of the particular sector and situation.

    If you’re the kind of person who finds this sort of interesting, it’s pretty interesting. The point about natural monopolies often having less monopoly than you might have expected if you just view them in isolation, without considering other ways customers can achieve their desires, is often forgotten. The need to think about wider systems and interoperability is pretty similar to Arthur the Cat’s point.

  12. Arthur the cat – “as long as they don’t screw up royally” – and that’s the precise difference between a public and a private monopoly.

    A Public monopoly doesn’t give a shit whether it screws up or not.

  13. Rail competes with road and air; it’s not a monopoly. Gas pipes compete with oil tanker deliveries (common in rural areas) and with electric. Electricity networks compete with diesel generators.

    You’ll notice that oil underpins a lot of the competitors; which is why governments are so keen to ban it.

  14. “Having two rival electricity grids or two water suppliers in the same municipal area is something that’s largely gone the way of the dodo because it just doesn’t make sense to arrange things that way.”

    Mostly because of government fiat. It was governments that stepped on and set up monopoly suppliers – not because it was a natural monopoly (it wasn’t, hence the multiple companies building redundant infrastructure) but because some planner decided he knew better.

    Maybe he did, in this case, but it isn’t because municipal water supply is a natural monopoly.

    Even today, where I live, within towns that have a single government mandated water mains supplier there are still competitors supplying tanked or bottled water to homes.

  15. @Andrew M

    “Rail competes with road and air; it’s not a monopoly”

    No, this is wrong – or at least, it isn’t the way that people working in industrial economics or competition law use the term. If there’s a rail connection between A and B for which the economically efficient ownership structure is one firm, then that’s a natural monopoly. (It’s even a natural monopoly if the government mandates several firms to compete, or if the market is still evolving and two firms are still fighting it out despite it being clear that only one can survive in the long run.)

    The fact that the rail line competes with road, air or water connections doesn’t stop the rail itself being a natural monopoly. But it does mean that the rail company has little monopoly power – which reduces the need for government regulation.

    You might think that’s a distinction without a difference, but your point about rail competing with other modes is exactly what Russell Pittman talks about in the paper linked above.

  16. “Natural Monopoly”, implying there’s some underlying Law of Nature that somehow magically ensures something will be the purvey of [something].

    There isn’t. Period.

    Like philip’s “Administration of Justice”…
    Nothing in Nature stops me from dispensing Justice as I see fit.
    A host of other things political do, or at least makes it counter-productive for me to do so, but there’s not a thing in the world that can stop me should I deem it neccesary.

    “Natural Monopoly” is one of the nastiest terms there is, since it’s meant to ritualise robbing individuals of agency, either politically or economically.
    Monopolies may make sense in specific cases, but “natural” they never are.

  17. Bloke in the Fourth Reich

    Sewage pipes are not natural monopolies. They have zero value* and no one wants to own them. When people find out they do own them, lawyers get involved. Current argument among residents of a condo in BiG City which needs drain repairs – everyone wants their proportion of the ownership to be as small as possible, not as large as possible.

    *: not because they are of no use, but because, like a lot of, er, conveniences, we take them for granted.

  18. Andrew M,

    “Rail competes with road and air; it’s not a monopoly.”

    It’s barely a player. Before Covid it was 2% of all journeys, 10% of all mileage. Probably more like 1.5% and 8% now.

    As an aside, I worked out that I could fly via Bristol-Dublin-Liverpool cheaper than the train.

  19. Jim in the antipodes

    Interesting that China now has about two thirds of the Very Fast Train network in the world, about 40.000kilometres. Built it all in the last 10 years or so. They seem to do things like that very quickly. Without endless talking about it.Cheap fares.too,

  20. China’s geography and demography is ideal for high-speed rail. Lots of cities of >1 million peeps with hundreds of km of nothing much in between them.

  21. Jim in the antipodes, (what do you have against podes btw?) the chinks can build this stuff very quickly because anyone getting in the way of an infrastructure project the CCP have decided will be built, will be buried underneath it. Can we do that in the UK please?

  22. @Grikath

    It’s not so much about a “law of nature”, and despite the (over)generalisations on this thread, it’s not true that industrial economists say “X is always and everywhere a natural monopoly because that’s just how it works”. It’s quite possible for X to be a natural monopoly in one place and time, but not in another. It’s basically determined by the cost structure, and as the cost structures change, the “natural” (efficient) number of firms in an industry change. You can see this happen with auto and (even more so) aircraft manufacturing, where the number of competing firms has gone down a lot over time as capital costs for developing and manufacturing a new model have risen. If the efficient number of firms (not necessarily the number actually in operation) hits one, then you’ve got a natural monopoly. But in principle, future changes in the cost structure could change it back to being a natural oligopoly again.

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