antitrust cases involve restrictive practices that can reduce competition in certain circumstances, like tie-in

sales, bundling, and predatory pricing.

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11 • Self-Check Questions 275

11.3 Regulating Natural Monopolies

In the case of a natural monopoly, market competition will not work well and so, rather than allowing an

unregulated monopoly to raise price and reduce output, the government may wish to regulate price and/or

output. Common examples of regulation are public utilities, the regulated firms that often provide electricity

and water service.

Cost-plus regulation refers to government regulating a firm which sets the price that a firm can charge over a

period of time by looking at the firm’s accounting costs and then adding a normal rate of profit. Price cap

regulation refers to government regulation of a firm where the government sets a price level several years in
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