In this case, the average total cost will continue to decline as the scale of production increase, because fixed (or overhead) costs are being spread over higher and higher levels of output” (Natural monopoly, 2010, Tutor2U). According to economic theory, it is efficient to allow for a natural monopoly because competition would require too large of a diversion of available resources for a competitor. When natural monopolies exist, they are often heavily regulated by the federal government. Examples of natural monopolies include local economic entities such as utility companies (electricity, water, gas, telephone, and cable television services). Given the large investment it takes to provide utilities, and the frequent stress upon the environment it is deemed mutually beneficial for all to have such legal, natural monopolies (Crawford 2005).
Today, four major antitrust laws exist. The first was the Sherman Anti-Trust Act of 1890 which forbade the existence of trusts and conspiracies that threatened the free flow of interstate and foreign trade as well as the existence of monopolies in general. Later, the Clayton Act of 1914 specifically prohibited price discrimination (selling the same product at different prices to different buyers), conditional sales that prohibited buyers from dealing with the sellers competitors, acquisitions of competitor companies and interlocking boards of directors. During the same year Congress also created the Federal Trade Commission (FTC) to enforce antitrust law. During the era of the New Deal, the “Robinson-Patman Act explicitly forbade [other] forms of price discrimination, in order to protect small producers from extinction at the hands of larger competitors,” and the 1950 Celler-Kefauver Antimerger Act, close loopholes in the Clayton Act (Antitrust law, 2011, Wests Encyclopedia of American Law ).
The three main regulatory commissions of industrial regulation include the Federal Energy Regulatory Commission (FERC), the Federal Communications Commission (FCC) and state public utility commissions.
The FERC has jurisdiction over electricity, gas, gas and oil pipelines, and water power sites, the FCC regulates communication systems such as television, radio; and state utilities regulate utility companies on a local level. Pricing and violations of antitrust laws and not upholding the public interest are all overseen by these commissions. The Food and Drug Administration (FDA), Equal Employment Opportunity Commission (EEOC), Occupational Safety and Health Administration (OSHA), Environmental Protection Agency (EPA), and Consumer Product Safety Commission attempt to protect the interests of the public and environment through social regulation, given that such factors might otherwise be disregarded by employers without appropriate oversight (Part V: Microeconomic issues and policies, 2011, Principles of Economics)
Antitrust law. Wests Encyclopedia of American Law. Retrieved February 18, 2011 at http://iris.nyit.edu/~shartman/mba0101/trust.htm
Crawford, Robert. (2005). Antitrust regulation. AP Economics. Retrieved February 18, 2011 at http://www.crawfordsworld.com/rob/apmicro/McConnellNotes/M1McConnell019.htm
Economics basics: Monopolies, oligopolies, and perfect competition. (2010). Investopedia.
Retrieved February 18, 2011 at http://www.investopedia.com/university/economics/economics6.asp
Part V: Microeconomic issues and policies. Principles of Economics.
Retrieved February 18, 2011 at http://www.scribd.com/doc/16244575/Micro-Economic-Issues-Policies
Natural monopoly. (2010). Tutor2U. Retrieved February 18, 2011 at http://www.tutor2u.net/economics/content/topics/monopoly/natural_monopoly.htm.