Natural monopoly

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Natural monopoly

  1. 1. Naturalmonopoly, regulation, andfreemiumToshiya Jitsuzumi, Dr.Kyushu University
  2. 2. Fruits of the Market Maximizing Maximizing corporate consumers’ profits welfare Without governmental intervention
  3. 3. Conditions for market dynamism• Perfect/Sufficient Information• Inclusiveness • No externality • No public goods• Perfect Competition http://www.dot- communications.co.uk/assets/images/HeadersLogos /terms_and_conditions.jpg
  4. 4. Features of the telecom industry Network Effect http://www.bourncreative.com/wp- content/uploads/2012/09/capitalize-on-uniqueness.jpg Natural Monopoly
  5. 5. Prerequisites for telecom services NTT-East NTT-West
  6. 6. Prerequisites for telecom services NTT-East NTT-West
  7. 7. Fixed cost Total Cost Variable cost Average cost Fixed cost Output Output
  8. 8. Economies of Scale Market demand curve Average cost curve Economies of scale Diseconomies of scale
  9. 9. Is “Natural Monopoly” naturally bad?• Higher price?• Inferior quality?• Insufficient R&D?• Less innovation?
  10. 10. Call for regulationBecause monopoly is the most efficient formof production in network industries, regulationshould be designed to achieve an “efficient” ora “least-harmful” monopoly. • Price regulation to constrain the monopolist’s greed • Entry regulation to guarantee the sustainability of the system
  11. 11. Needs for regulatory reform• Changes in market conditions • Increase in the market size • Technological innovations • New business models• Confidence in the market mechanism • Inefficiency of governmental intervention • Expectation of technological breakthroughs • Improvement of consumers’ literacy
  12. 12. New biz modelRecently, there emergesa wide variety ofbusiness models thattraditional regulationscannot well deal with. For example, “Freemium,” which offers basic services free of charge while charging a premium for advanced features, is not well fit within the traditional regulatory framework.
  13. 13. Two-sided market Source: Eisenmann et al. (2006)
  14. 14. Freemium in the telecom sector

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