Some have argued that the distribution of cable television service in a community is subject to economies of scale. Namely, it is cheaper to have just one company supply every household in the community with the service than to have several providers, each having to string separate cables throughout the community and each having to have its own satellite down-load facilities. On account of this apparent natural monopoly, communities employ franchise bidding to regulate local cable companies. Companies interested in supplying service to a community are required to bid ex ante for the right to be the sole supplier ex post. Explain why such franchise bidding com-petitions can serve to promote efficiency in markets characterized by natural monopoly.

  • CreatedNovember 14, 2014
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