The Myth of Natural Monopoly: The Case of Railroads

Amid the major regulatory reforms to increase the competitiveness of the rail market worldwide, it is essential to reflect on the nature of rail transport as an economic activity in order to develop appropriate regulatory policies. In the academy, it is common to treat railroads as “natural monopolies,” considered to be a “public benefit.” This article will explain the origin of the natural monopoly theory and the illusion that monopolies can be efficiently controlled by regulation and present evidence to show that railways do not constitute natural monopolies.