“Monopoly Power Exploits Consumers And Misallocates Resources. Therefore, Natural Monopoly Industries Should Not Have Been Privatised.” Discuss.

Essay by PaperNerd ContributorUniversity, Master's November 2001

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This issue that I will be discussing is one that has been asked by the government themselves and by economics commentators and reporters persistently over the years following the concept of privatisation. Privatisation was developed by the Thatcher government in her years of power from 1979. The main purpose of it at the time was to plug the massive drain on government resources that were needed to run these public companies. It was also believed that re-introducing the profit motive upon these companies would benefit efficiency and customers alike. During this essay I will be addressing the advantages and disadvantages of privatisation and will be including examples of natural monopolies which both have and have not been privatised in order to analyse to what extent the statement is true. I will also endeavour to advise whether I think the privatised companies have been of benefit overall and whether or not current public natural monopolies would benefit from privatisation.

There are many companies that were once nationalised and are now privatised that I could use as an example to try to answer the question of whether or not the statement is true. The main example that I will be using for this essay is that of the railway track in the UK. I will be referring to others also, but I feel this example to be very relevant and topical given recent events regarding Railtrack and the 28 companies which hold franchises to run a service upon the tracks.

I will begin by defining a monopoly. This is an industry where there is no close substitute for the good or service that is involved, in which there is a single dominant company that is protected from competition by barriers to entry to the market. Hence, the company has monopoly power as...