Wouldn't the solution then be to eliminate the capacity of local municipalities to grant cable monopolies?
That might be one solution. It certainly will be part of the ultimate solution.
Fiber is compact -- five or even twenty cable companies could coexist happily in New York (where I live) if the city didn't grant "franchises", which it charges exhorbitantly for. With large scale competition between cable companies, monopolies would no longer be a problem.
Which cable company has to eat the cost of digging the original groundwork? Or are you saying that every new cable entity will have to lay its own infrastructure? The capital costs of that create an immense barrier to market entry, and ease of market entry is a pre-requisite for free-market competition. The only reason the first cable companies even invested in laying cable is that they were guaranteed a local monopoly. Since government, in effect, participated in the creation of that part of the infrastructure, there are serious issues as to whether the first cable provider in a local area should continue to profit from a government-granted incentive while new potential providers are left high and dry. These are the kinds of issues that need to be addressed as we move from monopoly to free-market competition--how do we correct for the distortions caused by the initial government intervention in the market?
Isn't the problem in question the result of government granted, rather than natural, monopolies? Isn't it thus wrong to call it a "market failure"? Seems more like yet another government failure.
"Market failure" is a term of art. It refers to a condition, which may in fact be caused by government, in which market mechanisms have been prevented from ensuring competition. --Mike