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From: kort@hounx.UUCP (B.KORT)
Newsgroups: net.politics.theory
Subject: Re: Roads And Telephony
Message-ID: <492@hounx.UUCP>
Date: Sun, 12-Jan-86 14:33:15 EST
Article-I.D.: hounx.492
Posted: Sun Jan 12 14:33:15 1986
Date-Received: Tue, 14-Jan-86 20:45:05 EST
References: <343@ihnet.UUCP>, <469@whuts.UUCP>
Organization: AT&T Bell Labs, Holmdel NJ
Lines: 17

A further argument in favor of single-server industries (e.g.
monopolies) is economy of scale.  In the telephone industry,
as in the airline industry, the unit cost per message-mile or
passenger-mile goes down with the volume of traffic.  Competing
companies have trouble serving small-town America, because unit
costs are high in sparsely populated areas.  Airline dereglation
drove fares down between big cities, but smaller communities are
now much more expensive to fly to.  About a hundred years ago,
the British Post Office charged according to weight*distance.
Then a Minister of Posts introduced a flat rate independent of
distance.  People were then able to affix stamps to their mail,
and fewer postal clerks were needed.  The average cost of sending
a letter dropped.  The system worked because the Post Office was
a monopoly.  If competition were permitted, the competitor would
elect to serve only the short-distance inner city mail, at a cost
below the nationwide average.  Similar logic applies to competition
in the telephone industry.  --Barry Kort