Natural monopoly - efficiency?

Question

a) explain the relative efficiency merits of;
1.operating it as public enterprise and setting P=MC,covering the deficit from general taxation (include a discussion on the optimal taxation)
b)Regulating it such that P=AC
c) leaving it to operate as a private sector monopoly

Answer 1

I do not understand the details part, but I think I know of one natural monopoly. That is, one company that got so efficient, and put out such a superior product to its competitors that it cornered the market: Microsoft. I have just spent the last couple of months learning about Microsoft Office Suite. The effectiveness of having all those integrated programs that can pass data back and forth is amazing. Also, the menus and tool bars are similar from one program to another, so a person has less of a struggle to learn them all. I know MS bashing is a popular sport on the Internet, but I, for one, applaud their insight into the efficient use of a computer by those who are unsophisticated high-end users and don't want to have to learn a complicated vocabulary just to set up and run simple business applications.

Answer 2

Microsoft is NOT a natural monopoly. Electricity is a natural monopoly.

Microsoft was an inefficient, predatory monopoly until the government stepped in to stop their crimes. Microsoft stole original applications, put their Microsoft trademark on them, bundled them with their Windows operating system and bugged the competitor's apps so they wouldn't work seemlessly with Windows to discourage people from wanting to use the original software.

The OS itself is a glaring monopoly. You can see it in the pricing. When Windows XP came out, you'd expect Window 98 & 95 to be discounted. They're old models that wouldn't be priced the same as the new model, right? No, they were the exact same price.

Answer 3

Krugman (1998) chapters 11 and 12.