ABSTRACT
Except for the very limited and infrequent situations where a natural monopoly exists, there are no justifiable conditions for regulating industry. A natural monopolist, such as a local supplier of electric power, enjoys the advantages of large-scale distribution that can provide all of a market's output at lower unit costs than could exist if there were a number of power distributors. In such a situation, the community can obtain the lower costs only if it restrains the monopolists' natural propensity to maximize profits by setting prices at whatever the market will bear. The problem with the American application of this regulation principle, however, is that regulation has mostly been applied in situations where some degree of competition actually exists or where competition should be encouraged. The result has been that the community gets a regulated monopoly or a tight oligopoly when it would have been better served by creating and maintaining competitive conditions. Even the regulation of so-called natural monopolies has had its problems because of inefficient rulings on pricing and service by the regulatory agency, usually in the name of protecting the public interest.
