*** The Official CUCKposting thread ***

[OngBonga]

Yo Ong I really wanted to hear your thoughts on this.

Sorry been busy preparing to move house, plus work.

The second question, I'll answer that quickly... no.

The first one... what makes a natural monopoly? In my opinion (I'm not pretending to be an economist) it's a service that is both essential and comes from a single source, where the consumer has very little (not necessarily zero) choice but to use.

A natural monopoly is a business model where direct competition doesn't exist, and profit is essentially guaranteed by the need of the people to use the service.

I understand your point about bottled water and tap water being in competition with one another, but it's indirect and the tap water company needs to be performing particularly badly before a significant shift of custom moves to bottled water. So ok tap water companies can't literally charge what they like, but they can still overcharge while being "competetive" enough so people don't start bathing with bottled water.

So tap water is a natural monopoly, at least I believe so. People need it, and there is only one source.

Energy is another. I know savy seems to think that you can literally choose to use a different power plant, but you don't phone the plant and ask them for quotes. The "competition" here is an illusion... you're buying the same power from different middle men who charge different prices. What's the need for this competition? So the consumer has to figure out which one is taking the piss the least?

The only real competition enegery companies have is people investing in renewables, but for most people it's prohibitively expensive and therefore the energy companies are providing an essential service that the consumer has very little real choice on. Another natural monopoly.

You can't not make these things a monopoly. That's why they're natural.

[BananaStand]

So ok tap water companies can't literally charge what they like, but they can still overcharge .

Myth.

I though I had explained this quite thoroughly. There is a regulatory body within the government that oversees that tap water company and verifies that their return on invested capital is fair and consistent with the rest of the market.

They really don't have the ability to raise prices, or 'overcharge', in a way that would exploit their status as a monopoly.

[wufwugy]

Sorry been busy preparing to move house, plus work.

The second question, I'll answer that quickly... no.

The first one... what makes a natural monopoly? In my opinion (I'm not pretending to be an economist) it's a service that is both essential and comes from a single source, where the consumer has very little (not necessarily zero) choice but to use.

A natural monopoly is a business model where direct competition doesn't exist, and profit is essentially guaranteed by the need of the people to use the service.

I understand your point about bottled water and tap water being in competition with one another, but it's indirect and the tap water company needs to be performing particularly badly before a significant shift of custom moves to bottled water. So ok tap water companies can't literally charge what they like, but they can still overcharge while being "competetive" enough so people don't start bathing with bottled water.

So tap water is a natural monopoly, at least I believe so. People need it, and there is only one source.

Energy is another. I know savy seems to think that you can literally choose to use a different power plant, but you don't phone the plant and ask them for quotes. The "competition" here is an illusion... you're buying the same power from different middle men who charge different prices. What's the need for this competition? So the consumer has to figure out which one is taking the piss the least?

The only real competition enegery companies have is people investing in renewables, but for most people it's prohibitively expensive and therefore the energy companies are providing an essential service that the consumer has very little real choice on. Another natural monopoly.

You can't not make these things a monopoly. That's why they're natural.

Thanks for the response. I'll think about that.


What economists call natural monopoly derives from two elements: (1) fixed costs, and (2) economies of scale.

(1) is that the higher the fixed costs, the higher the natural monopoly. Example: if the fixed costs to start a business are $10, just about anybody can do it and the monopoly level is low, so to speak. If the fixed costs to start are $10M, a significantly smaller number of people can do it; therefore the market has a higher monopoly level, roughly speaking.

(2) is gains to efficiency made by scale increases. This is like how if you are the sole worker of your business, you do everything, and on average you might be able to produce $20/hr while costing $10/hr. But if you have ten workers, you each specialize at your comparative advantages, and could produce greater value at lower cost than you by yourself can. Equipment also factors in, which is also a fixed cost element.


Also, most markets are considered monopolistic. Monopolistic competition to be exact. What makes something monopolistic is having product differentiation. Economists don't view "need" or the like into what makes something monopolistic or natural monopoly; that is instead mainly captured by elasticity of demand, which means that for some things with high inelasticity of demand, like water might be (I don't know if it is), consumers will put up with higher price changes associated with lower quantity changes (the demand curve is very steep). For things with high elasticity, like a type of soda in a competitive soda market probably is, consumer response to price increases is to demand significantly less of the product.


Neat to note on (1) from above, this is why I said earlier how having more rich people and rich companies is an effective measure against natural monopolies. That makes higher fixed costs less costly to a larger number of potential competitors. On (2) from above, economies of scale creates an incumbent disadvantage to the firm too. Large structures can be less capable of adapting and more slow moving. One area we see an incumbent disadvantage is in Walmart not being able to compete with Amazon with internet/delivery services since any success for Walmart in that realm would detract from Walmart's bread and butter brick and mortar model. In this case, Walmart suffers from its own success. In perhaps an ironic way, monopolistic elements are necessary for growth of quality of goods and services in the first place. This is because to stand out to the consumer and for the producer to profit, product differentiation is key.

[OngBonga]

What economists call natural monopoly derives from two elements: (1) fixed costs, and (2) economies of scale.

Ok so I took the time to read this post and try to absorb it. The first point is very easy to understand. I was kind of hitting on this point without realising by referring to the infrastructure necessary to deliver an essential service.

The second point, I kind of get this. The more efficient a business is running, the easier it will be for it to outcompete its rivals.

Regulation also plays a part. The more regulated an industry, the less incentive there is to enter the market in the first place. The established and wealthier companies are better able to absorb the costs associated with regulations.

So ok I can see the point that nearly everything is monopolistic.

But soda isn't an essential service, and niether is Walmart or Amazon. If a company gains a monopoly in a genuinely competetive environment, then that's testament to their success. That's not really what my problem is. My problem is where companies are able to make profit off essential services where they have not earned that monopoly by outcompeting their rivals. They have bought that monopoly with money and influence; they won a government contract. That isn't free market capitalism, that's oligarchy.

[wufwugy]

My problem is where companies are able to make profit off essential services where they have not earned that monopoly by outcompeting their rivals. They have bought that monopoly with money and influence; they won a government contract. That isn't free market capitalism, that's oligarchy.

Do you dislike the profit part of it altogether, or are you thinking in terms of the firm using its market power to set the price higher and quantity produced lower than the market demand wants?

What is essential?

[OngBonga]

Do you dislike the profit part of it altogether, or are you thinking in terms of the firm using its market power to set the price higher and quantity produced lower than the market demand wants?

I think it's a simple as that money that is paid in dividens, that profit, would be better spent on investment, whether that be R&D or lower prices. I fail to see how these companies have earned the profit. Just by taking risk? What risk? Their profit is guaranteed. The only risk they're taking relates to their competence, and even that isn't a deal breaker.

[spoonitnow]

I think it's a simple as that money that is paid in dividens, that profit, would be better spent on investment, whether that be R&D or lower prices. I fail to see how these companies have earned the profit. Just by taking risk? What risk? Their profit is guaranteed. The only risk they're taking relates to their competence, and even that isn't a deal breaker.

The bold is mistaken.

The underline is just, like, your opinion man. Additionally, they've earned the profit by taking on the risk. That's how an investment works.

[OngBonga]

The bold is mistaken.

Well if their profit is as hard earned as your regular man's business, I might soften my tone somewhat. But I fail to see how it isn't guaranteed, or at least close to. Ok a nuclear meltdown or an oil slick is going to eat into their profits somewhat, but they lack the competition to pay the ultimate price for their failure. See BP for example.

[BananaStand]

I think it's a simple as that money that is paid in dividens, that profit, would be better spent on investment, whether that be R&D or lower prices.

If that's the case, why would the shareholders of these companies invest at all? Who would invest in a train with a 0% return when they could invest in....literally anything else....even treasury-bonds.....and earn a profit?

I fail to see how these companies have earned the profit.

They've successfully provided a service that people want at a price people are willing to pay.

Just by taking risk? What risk? Their profit is guaranteed.

False. Literally not even close.

The only risk they're taking relates to their competence, and even that isn't a deal breaker

Really? C'mon man...think!

What if a drunk driver blows through a railroad crossing and T-bone's a train? Or, if we're talking about the electric company, what if that drunk driver takes down some utility poles?

What if hackers breach the system and fuck with the electrical grid?

What if there is an ice storm and trees fall on the power lines, or across the railroad tracks?

What if there is a solar flare that shorts out significant portions of the infrastructure?

I could keep going...