Natural Monopoly

DEFINITION of 'Natural Monopoly'

A type of monopoly that exists as a result of the high fixed or start-up costs of operating a business in a particular industry. Because it is economically sensible to have certain natural monopolies, governments often regulate those in operation, ensuring that consumers get a fair deal.

BREAKING DOWN 'Natural Monopoly'

The utilities industry is a good example of a natural monopoly. The costs of establishing a means to produce power and supply it to each household can be very large. This capital cost is a strong deterrent for possible competitors. Additionally, society can benefit from having natural monopolies because having multiple firms operating in such an industry is economically inefficient.

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    Due to their highly stable earnings and cash flows, utilities companies are popular among investors interested in dividend ... Read Full Answer >>
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    In economics, a natural monopoly is defined as an industry in which production by a monopolistic company is much cheaper ... Read Full Answer >>
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