Question

How does the government regulate natural monopolies?

Answer 1

The Government regulate natural monopolies by A.) ensuring and overseeing one supplier, because a natural monopoly occurs when in an industry the fixed costs are too higher, so is very difficult that more than one business start activities in that industry, for that reason only can exist one competitor or one supplier, as an example of that are the public utilities as water or electricity.

Moreover, due to in the natural monopolies don't exist competitors in the same industry, the suppliers in those monopolies could abuse of their advantage and their market position by establishing higher costs to customers, so with the purpose to prevent that possible unjust actions, the Government regulate the natural monopolies by ensuring and supervising constantly to the only supplier of an specific industry.