Chapter 2 - The Sustainability of a (Natural) Monopoly

Abstract

This chapter investigates the properties of cost models that are both necessary and sufficient for an industry's being a natural monopoly. In particular, the focus is on electric utilities, and examines the functional components required to generate, transmit, and distribute electricity to end users, and that multiple-output cost measures are necessary when establishing natural monopoly for this industry. A literature review is also provided, as well as a discussion on economies of vertical integration, and how the deregulation of the industry seemingly ignored the well-established economies of both vertical and horizontal integration.