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RECENT DEVELOPMENTS IN THE THEORY OF NATURAL MONOPOLY
Author(s) -
Waterson Michael
Publication year - 1987
Publication title -
journal of economic surveys
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.657
H-Index - 92
eISSN - 1467-6419
pISSN - 0950-0804
DOI - 10.1111/j.1467-6419.1987.tb00024.x
Subject(s) - natural monopoly , oligopoly , monopoly , economics , market structure , product differentiation , product (mathematics) , natural (archaeology) , industrial organization , neoclassical economics , microeconomics , economies of scale , cournot competition , geometry , mathematics , archaeology , history
Abstract. This paper examines two important recent developments in the theory of natural monopoly, or more generally the theory of market structure. The first is a series of papers, involving Baumol with various co‐authors, investigating the theory of industry structure, whilst the second is particularly associated with the names of Shaked and Sutton, and the relationship they develop between product differentiation and industry structure. The paper surveys and to some extent contrasts these two new approaches. Baumol et al. 's contribution is seen to be in the area of clarifying the concept of natural monopoly, refining the definitions of multiproduct costs, and developing a notion of social efficiency applicable to industries where economies of scale are important. Shaked and Sutton employ a new definition of natural monopoly unrelated to market size and utilize information about consumers’income distributions to develop their notion of vertical product differentiation and natural oligopoly.