Water supply- NATURAL
MONOPOLY
The
Selangor Government will have to pay RM17 million in compensation to Syarikat
Bekalan Air Selangor Sdn Bhd (Syabas) when it starts giving free water in June,
2007. The compensation was based on the 20 cubic metres of free
water or RM11.40 monthly to be given to 1.5 million consumers in the state. Therefore, the
people need not pay RM11.40 in water bills. We can say that Syarikat
Bekalan Air Selangor Sdn. Bhd. (SYABAS) is one of the monopoly firms in
Malaysia because it is the only firm which supply water to the resident in
Selangor.
Since
supply of water requires high fixed or start-up costs to operate the business,
so it is known as a market structure called natural monopoly.
Natural monopolies are common in markets for ‘essential services’ that
require an expensive infrastructure to deliver the good or service, such as in
the cases of water supply, electricity, and gas, and other industries known as public utilities.
Government tend to nationalise
or regulate these firms because there is the
potential to utilize monopoly power and to ensure that consumers get a fair
deal. Therefore, the government give compensation to SYABAS to ensure that
people are not suffer for the water bills. In this way, society can benefit
from having natural monopolies because having multiple firms operating in such
an industry is economically inefficient.
resources:
- http://www.themalaysianinsider.com/malaysia/article/Free-water-will-cost-Selangor-RM17m-a-month-says-ex-MB/]
- http://www.themalaysianinsider.com/malaysia/article/Free-water-will-cost-Selangor-RM17m-a-month-says-ex-MB/]
written by: Yoon Jing Wei 0315416
Can you please explain, will SYABAS experience a loss if the government do not give them compensation?
ReplyDeletePerhaps. This is because the price that set by SYABAS which is known as regulated price or socially optimal price may be so low that the average total costs are not covered.
DeleteBeside SYABAS, is TNB considered monopoly?
ReplyDeleteYes, because it is the only firm that provide electricity in Malaysia. TNB is also considered as natural monopoly, because it is one of the public utilities. Most of the public utilities is considered as natural monopoly. Hope you will understand. :)
DeleteIs there any other way apart from giving compensation to SYABAS to cover the average total cost?
ReplyDeleteYes, another way is to condone price discrimination which allow the monopoly to charge some customers prices above regulated price and hope that the additional revenue that the monopoly gains from price discrimination will be enough to permit it to break even. In addition, the government can regulated price that is high enough for monopolist to break even.
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