1. Telmex could argue that it should be released from these regulations because it is a “natural monopoly.” Under what conditions do natural monopolies arise? With today’s technology, would you expect those conditions to develop in telecommunications? In energy generation?

A “natural monopoly” can satisfy the market at lower average cost than can multiple firms. This typically owes to having high fixed costs, and arbitrarily small variable (and therefore, marginal), costs. In telecommunications, which was always considered an example of natural monopoly when the costs to create a network were very large, new cellular technology makes monopoly less likely. Energy production, on the other hand, still has very high start-up (fixed) costs and continuously falling average costs over the range of likely production—exactly the circumstances defined as a natural monopoly.

2. Why do you think we would expect to see market price fall under these new regulations?

Market supply increases, for all types of substitute goods, reducing the price as well as individual firm demand.

3. Can you think of any argument why the government would want to protect these industries from foreign competition, and therefore not engage these regulations?

Fledgling industries need protection from foreign competition, but only until they are sufficiently mature to compete on their own. With the United States so close by—and under NAFTA, part of the same larger economy—the infant industry argument loses much of its power.

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