Natural monopoly

natural monopoliesinformation monopolymonopolistmonopolynatural" monopoliesnaturally
A natural monopoly is a monopoly in an industry in which high infrastructural costs and other barriers to entry relative to the size of the market give the largest supplier in an industry, often the first supplier in a market, an overwhelming advantage over potential competitors.wikipedia
139 Related Articles

Monopoly

monopoliesmonopolisticmonopolist
A natural monopoly is a monopoly in an industry in which high infrastructural costs and other barriers to entry relative to the size of the market give the largest supplier in an industry, often the first supplier in a market, an overwhelming advantage over potential competitors.
Monopolies can be established by a government, form naturally, or form by integration.

Economies of scale

economy of scalescaleeconomics of scale
This frequently occurs in industries where capital costs predominate, creating economies of scale that are large in relation to the size of the market; examples include public utilities such as water services and electricity.
Economies of scale also play a role in a "natural monopoly".

Market failure

market failuresmarket imperfectionmarket imperfections
Natural monopolies were recognized as potential sources of market failure early as the 19th century; John Stuart Mill advocated government regulation to make them serve the public good.
A natural monopoly is a firm whose per-unit cost decreases as it increases output; in this situation it is most efficient (from a cost perspective) to have only a single producer of a good.

Microeconomics

microeconomicmicroeconomic theoryprice theory
Two different types of cost are important in microeconomics: marginal cost, and fixed cost.
However, not all monopolies are a bad thing, especially in industries where multiple firms would result in more costs than benefits (i.e. natural monopolies).

Subadditivity

subadditiveFekete's lemmasubadditive function
810). He linked the definition to the mathematical concept of subadditivity; specifically of the cost function.
It is, generally, a necessary and sufficient condition for the verification of a natural monopoly.

Public utility

utilitiespublic utilitiesutility
This frequently occurs in industries where capital costs predominate, creating economies of scale that are large in relation to the size of the market; examples include public utilities such as water services and electricity.
In the United States, public utilities are often natural monopolies because the infrastructure required to produce and deliver a product such as electricity or water is very expensive to build and maintain.

Barriers to entry

barrier to entryentry barrierbarriers
A natural monopoly is a monopoly in an industry in which high infrastructural costs and other barriers to entry relative to the size of the market give the largest supplier in an industry, often the first supplier in a market, an overwhelming advantage over potential competitors.
The higher the barriers to entry and exit, the more prone a market tends to be a natural monopoly.

State-owned enterprise

Crown corporationGovernment-owned corporationstate-owned
A wave of nationalisation across Europe after World War II created state-owned companies in each of these areas, many of which operate internationally bidding on utility contracts in other countries.
SOEs are common with natural monopolies, because they allow capturing economies of scale while they can simultaneously achieve a public objective.

Average cost

average total costaverage costsaverage of the cost
Therefore, in industries with large initial investment requirements, average total cost declines as output increases over a much larger range of output levels.
This means that the largest firm tends to have a cost advantage, and the industry tends naturally to become a monopoly, and hence is called a natural monopoly.

Market structure

market formMarket formsnon-competitive markets

Price-cap regulation

price controlsprice-capRPI - X
A key part of the system is that the rate X is based not only a firm's past performance, but on the performance of other firms in the industry: X is intended to be a proxy for a competitive market, in industries which are natural monopolies.

Competition

competitorcompetitionscompetitive
A natural monopoly is a monopoly in an industry in which high infrastructural costs and other barriers to entry relative to the size of the market give the largest supplier in an industry, often the first supplier in a market, an overwhelming advantage over potential competitors.

Capital cost

capital costscapitalcapital recovery
This frequently occurs in industries where capital costs predominate, creating economies of scale that are large in relation to the size of the market; examples include public utilities such as water services and electricity.

Water industry

waterwater utilitywater company
This frequently occurs in industries where capital costs predominate, creating economies of scale that are large in relation to the size of the market; examples include public utilities such as water services and electricity.

Electricity

electricalelectricelectrically
This frequently occurs in industries where capital costs predominate, creating economies of scale that are large in relation to the size of the market; examples include public utilities such as water services and electricity.

John Stuart Mill

MillJ.S. MillJ. S. Mill
Natural monopolies were recognized as potential sources of market failure early as the 19th century; John Stuart Mill advocated government regulation to make them serve the public good. The original concept of natural monopoly is often attributed to John Stuart Mill, who (writing before the marginalist revolution) believed that prices would reflect the costs of production in absence of an artificial or natural monopoly.

Common good

general welfarepublic benefitsocial good
Natural monopolies were recognized as potential sources of market failure early as the 19th century; John Stuart Mill advocated government regulation to make them serve the public good.

Marginal cost

marginal costsmarginalmarginal cost pricing
Two different types of cost are important in microeconomics: marginal cost, and fixed cost.

Fixed cost

fixed costsfixedcommon costs
Two different types of cost are important in microeconomics: marginal cost, and fixed cost.

Investment (macroeconomics)

investmentphysical investmentinvestment spending
Often, a large portion of these costs is required for investment.

Oligopoly

oligopolisticoligopoliesoligopolists
With this knowledge, no firms attempt to enter the industry and an oligopoly or monopoly develops.

Marginalism

marginalistmarginalmarginalist revolution
The original concept of natural monopoly is often attributed to John Stuart Mill, who (writing before the marginalist revolution) believed that prices would reflect the costs of production in absence of an artificial or natural monopoly.

Principles of Political Economy

The Principles of Political Economy: with some of their applications to social philosophy
In Principles of Political Economy Mill criticised Smith's neglect of an area that could explain wage disparity.

Rate of profit

profit rateprofit ratesrate of return
If a business can only be advantageously carried on by a large capital, this in most countries limits so narrowly the class of persons who can enter into the employment, that they are enabled to keep their rate of profit above the general level.

Regulation

regulationsregulatorygovernment regulation
As with all monopolies, a monopolist which has gained its position through natural monopoly effects may engage in behaviour that abuses its market position, which often leads to calls from consumers for government regulation.