Objections to the Comparisons

Abstract

THERE are various objections to comparisons between monopoly and perfectly competitive output such as we have been making in the foregoing chapters. In the first place, there is a very common class of monopolies for which such a comparison is meaningless. In some industries, of which railways and the distribution of gas and electricity are familiar examples, the smallest practicable plant has a very large capacity output, and if the market is not sufficiently large to use one plant up to capacity, there is no possibility of competition. If by chance two firms were engaged in such an industry, they would either compete against each other so that neither was able to cover its costs, and the one with the least endurance would disappear, or they would form a combine. There is no possibility of long-period competitive equilibrium when the average costs of an individual firm fall with increases of output.