Where there is a natural monopoly situation, there may be a case for government intervention, either in the form of price regulation (for example, average cost pricing; stipulating a profit level or rate that must be earned), or government ownership. Government intervention usually has good intentions, but often has unintended, adverse side-effects. This essay is about the latter.
Your Tasks
a. Explain why a government might want to regulate a monopolist?
b. What is cost padding?
c. How does cost padding affect the way governments might regulate a natural monopoly?
d. What is gold-plating?
e. How does gold-plating impact on the cost-effective supply of electricity?
f. How can governments negate the adverse side-effects of gold-plating and cost padding?