The Myth of Natural Monopoly — Thomas J. DiLorenzo, 1996

This article argues that so-called “natural monopolies” are largely political creations rather than inevitable market outcomes.

Using historical examples from utilities, telephones, electricity, and cable television, DiLorenzo claims competition was often suppressed by government-backed monopoly privileges, not by market forces themselves.

1. Natural monopoly theory is historically false

2. Economies of scale do not eliminate competition

3. Competition historically existed in utility industries

4. Government regulation often created and protected monopoly power

5. The “duplication of facilities” argument is overstated

6. Monopoly pricing is not inevitable even in industries with high fixed costs

7. Real-world competition often benefited consumers more than regulated monopolies

8. The “natural monopoly” concept became a political and ideological justification for monopoly privilege

⭐ Star Facts (The Myth of Natural Monopoly)

• In the late 1800s and early 1900s, many industries labeled “natural monopolies” actually had multiple competing firms operating simultaneously.
• New York City had six competing gas companies before 1884 and six electric light companies organized in 1887.
• Chicago had 45 electric light companies legally allowed to operate in 1907.
• After AT&T’s patents expired in 1893, over 3,000 telephone competitors emerged, and by 1907 AT&T had lost about 51% of the market share.
• Competing cable television systems often charged about 23% lower prices than monopoly cable providers.
• In some competitive cable markets, companies cut prices dramatically:
  • one firm dropped monthly rates from $12.95 to $6.50
  • another upgraded from 12 to 54 channels after competition entered the market.
• Research cited in the article found that state electric utility regulation increased:
  • prices by 46%
  • profits by 38%
  • while reducing output by 23%.
• Economist Walter Primeaux found that cities with competing electric utilities often had:
  • lower prices
  • better service
  • no greater excess capacity than monopoly systems.