Resolution of Conjectures on the Sustainability of Natural Monopoly

Thijs ten Raa

RAND Journal of Economics, 1984, vol. 15, issue 1, 135-141

Abstract: Sharkey has conjectured that for a natural monopoly: (1) the core price vector of some output vector (which renders any partial supply of the output unprofitable) lies on the demand curve; and (2) such a price vector is sustainable, meaning that supply by an entrant would be unprofitable, even at lower prices. This article demonstrates that (1) is true even under quite general conditions that allow for interdependent demand, (2) is true provided that demand is independent, but (2) can be invalidated by demand interdependence.

Date: 1984
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