How do we limit the power of natural monopolies?

 Governments and regulatory bodies employ several methods to limit the power of natural monopolies and ensure they do not abuse their market position to the detriment of consumers or the economy. Here are some logical steps that explain these methods:

1. **Regulation**: This is the most common approach to control natural monopolies. Regulatory agencies set performance and pricing standards to ensure that the monopoly does not charge excessively high prices or provide poor service. These may include rate-of-return regulation or price-cap regulation.

2. **Public Ownership**: Sometimes, governments choose to take over natural monopolies, especially when the services provided are essential, like water supply or electricity. Public ownership enables the government to control prices and invest in the infrastructure to meet public needs.

3. **Market Structure Modification**: This involves restructuring a market to encourage competition. For natural monopolies, this might include creating competition for the market. An example of this is when the government allows separate companies to bid for the right to be the sole provider of a service for a specific period.

4. **Antitrust Laws**: While not always applicable (since monopolies are by definition the sole provider of a good or service), these laws can be used to prevent a natural monopoly from engaging in anticompetitive practices, like predatory pricing to keep potential competitors out of the market.

5. **Quality and Service Standards**: Regulatory bodies often set standards for service and quality to ensure the monopoly does not skimp on their offering to increase profits.

6. **Access to Essential Facilities**: Regulators can require natural monopolies to give competitors access to essential facilities under reasonable terms and conditions. This can help foster competition even within industries where a natural monopoly exists.

7. **Price Controls**: To protect consumers from being overcharged, regulators can use price controls to set the maximum prices that a monopoly can charge for its products or services.