Efficiency Of The Natural Monopoly Industry Regulation

Natural monopoly means that the probability of supplying for the whole market by only one firm or rather few firms will be higher when there are resource rarities, or scale economy, or scope economy, or network economy in the industry. With the structure of the market, driven by profit, firms will provide consumers with worse goods (or services) but higher price, while they have lower productivity and less impulse to innovate. In this situation, social welfare were greatly damaged, and its division turns to be low efficient. Thus, it calls on government regulation to avoid bad resource allocation efficiency and promote impartial division of social welfare.However, regulation does not work as we expected. In real economy running, "capture of regulation", great regulation cost and the lag often make the regulation effect betray its original goal, and hook greater welfare loss which excessively restrict the regulation efficiency. Therefore, more and more attentions are being paid to the efficiency of regulation.Based with the definition of the regulation efficiency, in this paper I discussed the four sides including direct regulation effect, allocation efficiency, division efficiency and dynamic efficiency, by the way of cost and benefit analysis, demonstration analysis and price regulation model. This paper aim to make it clear that regulations of natural monopoly industry need improvement, and should be evaluated from four parts. Then, this paper proposes several elements that influence the efficiency of regulation, from regulation institution, property right system to demand exaggeration and technical innovation, assuming that regulation institution internality works, while demand and technical innovation makes challenge. In the end, I make some suggestion to improve the quality of natural monopoly regulation, such as independent regulation institution, good law environment, breaking administrative monopoly and property right reform in monopoly industry.It researches into the efficiency of regulation from a more general, more reasonable viewpoint. Not only did it refer to the direct regulation effect, but also pay more attention to the efficiency of allocation, division and dynamic. As far as the ways used in this paper, it combined the theory model with demonstration analysis, and made the first step to explore the measure of regulation efficiency.