Question

Why is it in the best interest of the government to regulate natural monopolies

Answer 1

There are two main reasons that explain why goverments regulate monopolies.If monopolies were not regulated:

• Producers will charge higher prices for lower quality products because they face a much more ineslatic demand function, as consumers cannot switch to a different producer in order to obtain a certain good or service. Therefore, this situation is harmful for consumer and the goverment intervenes to suffocate it.
• Competitiveness is limited. Producers are not forced to constantly improve their products or production processes because they do not have to compete with other companies for controlling the market. In the end, if such efforts are not made, the society as a whole is harmed because better technologies and better product attributes have not been developed and cannot be enjoyed.

Answer 2

To keep costs to a minimum for consumers