Why Regulate Utilities ?

Abstract

Current economic doctrine offers to its students a basic relationship between the number of firms that produce for a given market and the degree to which competitive results will prevail. Stated explicitly or suggested implicitly is the doctrine that price and output can be expected to diverge to a greater extent from their competitive levels the fewer the firms that produce the product for the market. This relationship has provided the logic that motivates much of the research devoted to studying industrial concentration, and it has given considerable support to utility regulation.²

The author is indebted to R. H. Coase, who was unconvinced by the natural monopoly argument long before this paper was written, and to George J. Stigler and Joel Segall for helpful comments and criticisms.