Subject:
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Re: debate fodder from an unusual source...
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Newsgroups:
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lugnet.off-topic.debate
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Date:
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Tue, 15 Oct 2002 13:17:18 GMT
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Viewed:
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373 times
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In lugnet.off-topic.debate, Lester Witter writes:
> Economist have a concept called "natural monopoly" which refers to a industry
> where the capital investment is so large that it is not in society's best
> interest for there to be one than one supplier.
*some* economists do. Others reject the notion of a natural monopoly.
The classic example is the
> local power industry (Most utilities are natural monopolies). It would be
> terribly wasteful to have two sets of power lines running to each house, so
> each area is serviced by a single company under a "fanchise" (not quite the
> right term) arangement regulated by the local, state and federal (US model)
> governments. The water and sewage systems are another example (typically owned
> and operated by local governments is the US). I am a very strong free market
> guy, but I recognize the practical need for this type of arrangement.
Just as a side note, I've said in the past that I didn't buy the natural
monopoly argument, and have argued in detail against specific examples...
> So here is the question for debate:
(reordered)
> To put it specifically, Would it be more efficient for air travel to be a
> utility with each route managed by a single company. Rates would be regulated
> to provide the suppliers with a reasonable return on assets (The basis for
> utility rates)
Clearly not, in my view. If you think service is bad now, you would not have
seen anything yet!
Air travel demand has a relatively inelastic component (the business
travelers who have to travel, although some substitution for travel is
possible, there are certain times when one MUST travel) and a highly elastic
component (leisure travel). Therefore it is quite unlikely that any
regulatory board would be able to set rates accurately.
Further, since air travel on a particular route (for example Grand
Rapids/Harrisburg) is highly substitutable (I can take a train, I can drive,
I can fly to Allentown instead, I can fly out of Lansing instead, I can
connect through CVG, or ORD, or DTW or etc etc etc) if you regulate all or
part of it, you will easily skew the market badly and wreck the market
allocation mechanism. It's already true to a certain extent as it is.
In fact I would argue that the skewing due to regulation and subsidy is a
large part of the problem if not the only part.
To LFB's point, it is indeed not fair that Amtrak is held to a different
standard than the automobile or the airplane. But that does not argue for
loosening Amtrak's purse strings, it argues for making other modes of travel
pay their true costs so the market works. We are vastly skewed in favor of
automobiles (and worse, trucks) because they come nowhere near to paying
their true cost. (I laugh every time I see that placard on the back of a
trailer saying "we paid 4700 USD in tax last year" because that is NOWHERE
NEAR the replacement cost of the damage to highways that an average truck does)
> Are airlines natural monopolies?
I would say not. Even if we grant the criteria for natural monopolies above
as being valid (which I do not) they fail those very criteria for the
reasons of substitutability above. Airlines have no natural monopoly.
> Lester
>
> PS: Railroads pose a similar question
Yes. With a similar answer. The renationalisation of the UK (after an
incorrectly structured partial denationalisation) is not going to help, it
is going to make things worse.
Expect someone in this debate to trot out the California power debacle as an
argument against deregulation. Ignore them, unless they frame it as an
argument for getting government out completely. Gray Davis and his cronies
should be impeached, rather than reelected.
> PPS: An interesting side note: Many if not most houses in the US have both
> telephone (wires) and cable (originally for TV). Since current and anticipated
> technology make these systems redundant. Should we phase out the one that is
> more expensize to maintain (this would be a hugh expense because of existing
> infa-structure in existing buildings)
Again, no. We should keep both as that's the thing that will break the cable
monopoly. Wireless is already breaking the land line telephone monopoly.
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Message has 1 Reply:
 | | Re: debate fodder from an unusual source...
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| (...) I would imagine that both are related to the level the economy is operating at. (...) I'm not sure "Railroads" have been nationalised in the UK(?) - I exepct Tony has went the "3rd Way". (...) However you look at that mess, it is not an (...) (22 years ago, 15-Oct-02, to lugnet.off-topic.debate)
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Message is in Reply To:
| | Re: debate fodder from an unusual source...
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| Economist have a concept called "natural monopoly" which refers to a industry where the capital investment is so large that it is not in society's best interest for there to be one than one supplier. The classic example is the local power industry (...) (22 years ago, 15-Oct-02, to lugnet.off-topic.debate)
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