Suppose road #1 is the only one leading from point A to point B. Accordingly, a monopoly arises, and entrepreneur #1 raises the price to an enormous value. In theory, some entrepreneur #2 should appear who will break the monopoly and build their own road #2; let’s assume that is what happens. After this, the owner of road #1 simply lowers the price to the market rate, and entrepreneurs 1 and 2 compete. So what is the benefit for entrepreneur #2 to break the first one’s monopoly if they get no advantage from it?
The situation modeled in this question does not correspond to the processes that actually occur in the market. Following this logic, after a certain business appears in a specific location, no one else would open a similar business there because it would be unprofitable. However, we observe something entirely different. On one street, you can almost always see several grocery stores; in one shopping center, several restaurants; in one building, several offices of different insurance companies, etc. A new business opens as long as any acceptable profit can be made from it, because that too is profitable.
Furthermore, let’s consider the specific case of roads. Even a monopoly owner of a road on a certain straight line between two points is unable to excessively inflate the toll cost simply because they are not actually a real monopolist. If people feel that this “monopolist” is hiking prices too high, they will decide that it is more profitable, for example, to take a detour that goes through point “C” between points “A” and “B,” or to use some alternative mode of transport (rail or air), or, in the extreme case, to travel off-road entirely. Therefore, even without direct competition, the monopolist cannot set the toll significantly above the market rate, as such a decision would bankrupt them. Nevertheless, it is still profitable for them to own the road, as they are still capable of generating an acceptable profit from it. Similarly, it will be profitable for any agent who decides to build another road parallel to it.
Vitaliy Tizun
