Government control of monopolies or at the very least regulation of monopolistic industries is needed when dealing with critical national infrastructure operations, such as electricity generation, or water supply. These kinds of operations are critical to a country’s daily operations and provide essential services to the public in general and critical government infrastructure organizations. These kinds of industries are not usually suitable for a fully competitive market structure, and should be controlled to prevent any abuse of monopolistic power or to jeopardize the production of critical services or resources to the economy.
Economies of scale can be achieved in a monopoly, due to its single supplier status, as well as its pricing structure. These monopolies have to operate inside a framework that sets conditions for operation that try to prevent abuses of power and inefficiencies of services. The end consumer, and the government who allow a monopoly to control these kinds of services, are protected from this abuse by these conditions of operation.
These conditions do however make entry into the market by another supplier very difficult, which in turn helps with market regulation due to the fact that a truly competitive market, with a variety of suppliers will not develop. If there is more competition in a market, then eventually an efficient allocation of resources and operations will occur. However, monopolies that have been setup to deal with the critical operations of a country argue against this theory.
They argue that the very fact that the monopoly has been created to provide particular goods or services that form part of the critical infrastructure should enable it to be free of competition. In a market with true competition, there would be differences in the market and with each competitor trying to find the most cost efficient way to provide these goods or services, and for critical services such as electricity generation, the supply of the service is far more important that trying to implement a market with true competition and cost efficiency.
These services should not depend on market forces or the public’s ability to pay for these services in a truly competitive market. Eventually under a truly competitive market, some people would not be able to afford the price changes that would occur under this system and would be priced out of the market for essential goods or services. This is the reason that these critical services should be regulated by the government to ensure everyone has access to them even if it is not done in a truly cost effective and efficient way.