1REGULATION IN NATURAL MONOPOLYIntroductionBased on the number of buyers and sellers, markets are classified in separatecategory. The market with a single seller is called a monopoly market. In the monopolymarket, the single seller grabs maximum profit and the entire surplus in the market byexploiting its market power. The monopoly market when compared to a competitive marketalways seems inefficient in terms of resulting in a deadweight loss. A special form of marketsimilar to a monopoly market is natural monopoly. It is a market that is best operated by asingle seller than two or more. In a natural monopoly market, the seller enjoys a cost advantage and able to producegoods at the falling part of average cost curve. Examples of natural monopoly market includeelectricity service, public water company and public utilities. Question of regulation comeswhen the natural monopolist starts taking operation decision like a pure monopolist. In such asituation, the monopolist chooses profit-maximizing level of output where a lower quantity issupplied at a high price. In such a situation, government has taken pricing decision by eitherfollowing an socially efficient pricing strategy. Efficiency comparison between monopoly and perfect competitionPerfect competition is a market scenario where there are numerous participants inmarket exchange operation. Market equilibrium occurs at a point where demand and supplycurve matches with each other. The presence of large number of buyers and sellers in themarket makes it impossible for a single buyer or seller to affect price or output. Therefore,efficient point is reached without any intervention (Hovenkamp, 2015). The market conditionwith competition among the sellers is described below.

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