Econ 461 Quiz2 - When it comes to network utilities there...

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When it comes to network utilities there are many neoclassical economic concerns. Natural monopolies are inefficient for the welfare of society and thus regulation is necessary to bolster competition. Some of the ways in which the number of firms in the market and prices can be controlled show the potential negative-effects of differing economic strategies. One possible concern is when access prices are set based on use. It is difficult to implement due to the difficulty in calculating correct prices in such a rapidly evolving industry like telecommunications. There is an increased risk of regulatory capture when there are complications setting prices. With an increase in regulatory discretion comes an increase in effort on the part of the industry to influencing the outcome. Another way to regulate the industry would be by using a global price cap. This would allow monopolists to set their own prices while under a price cap. In order for this to properly work intermediate goods must be treated as final goods when computing the cap, and the weight used when calculating the cap must be proportional to the expected quantities of the relative good. Unfortunately, this does not happen in standard practice since
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