A local cable company, the sole provider of cable television service, is regulated by the municipal government. The owner of the company claims that she is normally opposed to regulation by government, but asserts that regulation is necessary because local residents would not want a large number of different cables crisscrossing the city. Why do you think the owner is defending regulation by the city?

Answer 1

Because its better, profit-wise, for a firm to be a monopoly and be regulated than to openly compete in an unregulated market. The firm is able to maintain it's monopoly because the regulators keep outside competition from entering by not allowing new cable lines.