Note that in the case of an unregulated natural poly, one would not ex- X-inefficiency to occur unless there were a divergence of information and in- terests between owners of the firm and its managers. We put this type of problem into the perspective of agency theory in our discussion of government failures in Chapter 8 In summary, natural monopoly inherently involves the problem of
undersupply by the market. The extent of undersupply depends on the particular cost-and-deman conditions facing the monopolist and the extent to which the market can be contested. Natural monopoly may involve additional social surplus losses because the absence of competition permits production at greater than minimum cost to persist.