[amazon_not]

I don't get this argument. Why would a monopoly turn away customers? More customers mean more fat margins.

I do get why a monopoly would not want to invest more in capacity (for example DSLAMs). A dollar may have higher returns for the monopoly somewhere else, especially if the monopoly can't (immediately) sell all ports on the new DSLAM.

However, if there is free capacity (for example DSLAM ports), why would a monopoly turn away paying customers?

[logfromblammo]

A perfectly competitive business operates such that price equals marginal cost.

A monopoly operates such that marginal revenue equals marginal cost.

This usually works out such that the quantity supplied is lower and price is higher than the market-clearing quantity and price under perfect competition.

This is an unstable point, because a competitor could enter, and capture some of the unrealized benefit of trade in the triangular area between the monopoly quantity and the competitive equilibrium quantity. If the business is a natural monopoly, and the incumbent does not act quickly to drive the competitor out, they could flip the market and drive out the incumbent instead. A natural monopoly under normal circumstances should occasionally see brief bouts of competition that are essentially deathmatches between businesses. Customers get greater supply and lower prices during these bouts.

So many businesses that are the incumbent in a natural monopoly market try to solidify their position with an enforced monopoly, making competition illegal. This is usually sold as protecting consumers from market disruptions, but that is always a lie. It only protects the incumbent and their guaranteed economic profits from an intentionally underserved market.

[amazon_not]

I get the economic theory, but I don't get how it would result in the actions prescribed in your example.

> Refusing to install another DSLAM means they can sell space on the existing ones at a higher price.

As customers as either on fixed term contracts or grandfathered in on existing plans, I don't quite get how ports on the DSLAM could be sold for a higher price.

I suppose prices could be raised as contracts run out and old plans are sunset, or when an existing user cancels and a new one seeks service. Is this what you mean?

> A monopoly must necessarily limit supply to increase profit. That means that turning away potential customers--even customers that spontaneously appear without advertising or recruitment--is an essential part of the business model

I get that the monopoly would limit supply by not installing new DSLAMs, but turning away customers? Why would a monopoly do that if there were free ports on the DSLAM?

Possibly raise prices yes, but refuse to sell no.