| | Pete
Many countries have privatised water infrastructure services, if by that you mean pipelines. In the UK for instance, you can buy shares in five water companies, all of which own pipelines. However although some aspects of their businesses are open to competition, the pipelines parts of the business are not. The pipelines are regulated monopolies, which means that they are subject to price regulation which attempts to create incentives that mimic a competitive market.
The pipeline example generalises to other networks, including gas pipelines, electricity lines, transport (rail especially), and telecommunications lines. Privatisation of these network assets ranges from none, to fairly laissez faire (the most laissez faire example I know of is German gas pipelines, which are not explicitly price regulated at all, although they operate under various voluntary codes which are designed to ward off inevitable EU regulation. Others may know of better examples (eg. Telecom in New Zealand???)).
But there is no such thing as a natural monopoly. There is always an alternative (unless absolutely forbidden by govt). However the costs of an alternative may be extremely high.
As for free market solutions to network "monopolies":
1. When you turn these things over to private ownership, give the ownership rights to the users of the service. i.e. Give water networks to the household owners served by those networks. That way users can decide to sell their shares in the business or hang on to them as they wish. Any "monopoly profits" are then returned to the users who paid the high prices in the first place, so overpricing is irrelevant.
The problem of course is that people shift houses. Inevitably therefore the utility will end up in the hands of people who aren't users of the service, and you are back to the "monopoly" problem. You may be able to get around this by attaching the ownership right to the house itself, rather than to the houseowner (i.e. make the shares non-tradable). But then you are back to the situation that these things would have to be run by representative boards - i.e. councils. But some people advocate this sort of system because you would end up with competiting locations. In other words, people would choose the suite of (semi-public) services and prices that they wanted as part of their decision about where to live.
2. You can just forget about the problem altogether, acknowledging that free markets ain't always "perfect" markets (see Ed Younkins' article today), but so be it. High network prices will encourage the maximum usage and development of alternatives, and that is certainly the fastest way to resolve the problem in the long run.
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