Regulated Monopolies

Regulated monopolies are organizations that are granted the legal right to operate in an environment where there is freedom from competition. The grant to operate in this manner is given by governmental agencies, and there is recognition that the monopoly is counter to traditional free-market theory and policy.

To offset the freedom from competition, the granting agencies may stipulate a variety of conditions that may include, but may not be limited to, the rates charged customers, the services that are to [Page 736]be rendered, the required amount of infrastructure building and maintenance, and the level of services that are required of the monopoly holder. Because of this unique arrangement, organizations operating regulated monopolies have need of business and public relations strategies to support their continued successful operations. Effective strategies must reflect the history and role of the regulated monopoly in the economic system.

The concept of the regulated monopoly in the United States began at the end of the 19th century and start of the 20th century. Prior to the late 19th century, the governmental philosophy at the federal, state, and local levels was generally one of laissezfaire—keep government out of regulation and let competition determine the provider of services. Government recognized the importance of competition, and in 1890 the Sherman Antitrust Act was passed to reduce monopolies and ensure competition. President Theodore Roosevelt used the act in the early part of the 20th century to attack the power of the industrial trusts. The growth of the industrial empires and the monopolies that they created and the resulting abuses of economic power became issues of public discussion. For example, unregulated railroads that had monopolies in certain areas of the United States could charge shipping rates that made it difficult for producers to maintain a profit for their ventures because shipping rates were set very high by the monopolistic rail carrier.

Much of the impetus for government action was the public discussion of the economic abuses by large monopolistic organizations caused by the writings of journalists called muckrakers by President Theodore Roosevelt while he was in office in New York. He later came to respect the writings of the muckrakers as they supported him as he sought to ensure competition in the American economic system. These writers and their publishers centered articles on the alleged economic and social hardships that the monopolistic organizations had created in society.

Out of this environment grew the regulated monopoly. The concept was used to ensure that essential services would be provided at reasonable economic cost, but the possibility for abuse was to be diminished by governmental control. Many of the controlled monopolies were created out a need for services, but where the cost of providing duplicate investments that would ensure competitive services was economically unfeasible. Examples of these monopolies were municipal water, sewer, and telephone systems, and electrical and gas systems. These services are often provided by corporations owned and operated by municipalities (municipal corporations). In many communities these vital services are provided by for-profit private corporations. The following discussions are premised on the idea that the regulated monopoly is a business entity that is privately owned or a corporation that is owned by stockholders. In most states municipal corporations as well as for-profit corporations are regulated by policies of a state board or regulatory commission. In some states these boards and regulatory commissions are elected; in others these boards and commissions are appointed, usually by the governor with confirmation of the appointees granted to the legislature, often the higher-ranking body if the legislature is bicameral.

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