Efficient pricing of services means the lowest price for an equal quality service.
In market economies, a natural monopoly occurs when the most efficient number of firms in the industry is one. In human communities, the commons is the cultural and natural resources accessible to all members of a community, including natural materials such as air, water, and a habitable earth.
A natural monopoly becomes a Commons when all members of a community act as a single entity as though they were a single firm. By using Commons governance principles communities can create the most economically efficient way to provide natural monopoly services. This paper outlines the issues arising when market economics set prices in a monopoly market and then outlines how a Commons would set prices. Commons principles will always produce the most economically efficient outcome and typically halve the cost to a community of the same output of any resource.
Setting Prices with Market Economics
Traditionally regulators use market economic theory to price monopoly services. Market economic theory assumes there are many suppliers and many buyers. It assumes buyers and sellers have perfect knowledge. The “invisible hand” of the market works by buyers choosing the lowest-priced goods from suppliers. Suppliers price their products at what they think buyers will pay and buyers keep prices low by buying from low-priced sellers.
Regulators of monopoly markets set the maximum amount that monopoly suppliers can earn on their capital and set the maximum price they can charge for services.
In a competitive market, suppliers compete for customers and provide prices that are attractive to different customers. Typically this involves having a fixed price flag fall, subscription fee, or varying the unit price for goods delivered. Usually, the more product a customer buys, the lower the unit price.
In a market, suppliers try to get more customers and hence sales and so offer incentives for people to buy from them. Suppliers lock in customers with contracts and by making it inconvenient and difficult for customers to move and to choose.
Varying the price for different customers, buying customers, making moving inconvenient are all substantial costs associated with markets. Suppliers do not mind doing these things because their rewards in regulated markets often include a…