UNNATURAL MONOPOLY

This paper investigates the merits of statutory monopoly as a means of preventing wasteful market fragmentation. The key result is that a pu blic firm committed to price at cost may be unable to repel entry even when it is socially desirable that it should do so. Limited entry may be worse than either statutory monopoly or free entry. The robustness of results when competition stimulates a state firm to lower its cost s is also examined.