Question

In a magazine article, a writer explained that the provision of electric power in the United States consists of two processes: the generation of electricity and the distribution of electricity. The writer argued that "power distribution is a natural monopoly... . But ... there's ... no reason why the people who generate the electricity ... should be the same people who own the power lines."

a. Why would the distribution of electric power be a natural monopoly?
b. Why would the generation of electric power not be a natural monopoly?

Answer 1

Answer: Monopoly is a firm which is the only seller of a particular products or services.

One of the reasons for monopoly is to be privilege to be the only one to have access to a product, in this situation the generating company will naturally have monopoly of distributing electric power since you can only have access to electric power for distribution if you are a power generator or you obtain from them.

A natural monopoly of electricity distribution been conferred on the generating company will help to eliminate price increase by middle men.

2. The generating of electricity power should not be a natural monopoly for this reasons

1. Generating activities is the only sources of electricity limiting it to a firm may exposed it to market population.

2. The scarcity of a competitive substitute for electric power will make the monopolization of it's generation harmful.