successful firms of anticompetitive restrictive practices, and try to win through government regulation what

they have failed to accomplish in the market. Officials at the Federal Trade Commission and the Department of

Justice are, of course, aware of these issues, but there is no easy way to resolve them.

11.3 Regulating Natural Monopolies

LEARNING OBJECTIVES

By the end of this section, you will be able to:

• Evaluate the appropriate competition policy for a natural monopoly

•

Interpret a graph of regulatory choices

• Contrast cost-plus and price cap regulation

Most true monopolies today in the U.S. are regulated, natural monopolies. A natural monopoly poses a difficult

challenge for competition policy, because the structure of costs and demand makes competition unlikely or

costly. A natural monopoly arises when average costs are declining over the range of production that satisfies
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