p- oly was eroding; perhaps some of the business failures that resulted were caused, in part, by underestimating the residual natural monopoly power of the incumbents. Western Union The first commercial form of electrical telecommunications was the Morse tele- graph. It was a revolutionary invention that, along with the railroad, reshaped the United States and Europe during the 1840s. No longer were goods and mes- sages conveyed by horse; the iron horse could now carry people and goods over long distances, whereas the telegraph could send information over long distances in minutes. The telegraph industry in the United States had some early competition, but a number of companies came together under the control of Western Union. It held monopoly power, not by regulatory fiat but by a combination of natural monopoly (economies of scale) and aggressive business tactics. But Western Union was apparently becoming a bit complacent by the 1870s. Its digital trans- mission technology was about to be upstaged by another revolutionary inven- tion, analog transmission of voice. It is still debatable as to whether the telephone was really invented by Alex- ander Graham Bell or by Elisha Gray. Bell's original telephone, for which he was granted the patent in 1876, did not have a separate mouthpiece and earpiece. It probably did not work well at all. Gray is credited with inventing the micro- phone; his two-part telephone design was closer to what actually caught on. Leg- end has it that Western Union turned down a chance to buy Bell's patent because the company did not think that the telephone would ever catch on. A more likely explanation is that it thought his patent was not valid; the company had instead bet on Gray. Western Union had previously merged its own manu- facturing operations into Gray's company, Gray and Barton, creating the West- ern Electric Company, and both Gray and Bell had filed patent applications on the telephone. But Bell had the better patent lawyer; Bell's company sued West- ern Union for patent infri