Natural Monopoly

What is a 'Natural Monopoly'

A natural monopoly is 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.

RELATED TERMS
  1. Legal Monopoly

    A company that is operating as a monopoly under a government ...
  2. Monopoly

    A situation in which a single company or group owns all or nearly ...
  3. Franchised Monopoly

    Monopoly status given by the government to a company. A franchised ...
  4. Rate Of Return Regulation

    A form of price setting regulation where governments determine ...
  5. Average Cost Pricing Rule

    A pricing strategy that regulators impose on certain businesses ...
  6. Monopolist

    A person, group or organization with a monopoly. In other words, ...
Related Articles
  1. Economics

    How & Why Companies Become Monopolies

    Without competition, monopolies can raise prices and lower quality leaving consumers little choice. But monopolies can benefit consumers as well.
  2. Personal Finance

    A History Of U.S. Monopolies

    These monoliths helped develop the economy and infrastructure at the expense of competition.
  3. Economics

    How a Monopoly Works

    In economics, a monopoly occurs when one company is the sole (or nearly sole) provider of a good or service within an industry. This potentially allows that company to become powerful enough ...
  4. Economics

    A History Of U.S. Monopolies

    Here are a few of the most notorious monopolies in U.S. history.
  5. Investing

    New Monopoly Edition Ditches Paper Money (HAS)

    Hasbro's latest version of Monopoly speeds up the classic game and reflects our movement towards a cashless society. It will still probably end friendships over the "free parking" rule, though.
  6. Investing Basics

    5 Lessons Monopoly Teaches Us About Finance And Investing

    The game of Monopoly can increase your chances of having a better and useful understanding of prudent financial and investment principles.
  7. Personal Finance

    Early Monopolies: Conquest And Corruption

    This structure can be very effective, but it is also known for its abuse of power.
  8. Personal Finance

    Antitrust Defined

    Check out the history and reasons behind antitrust laws, as well as the arguments over them.
  9. Investing Basics

    Is Google Becoming A Monopoly?

    Learn about whether Google is becoming a monopoly. Monopolies are considered undesirable because they prevent competition and innovation.
  10. Economics

    Macroeconomics: Economic Systems

    By Stephen Simpson Within the study of macroeconomics, there are certain basic goals for economic systems. Generally speaking, desirable goals include economic growth, full employment, economic ...
RELATED FAQS
  1. Are monopolies always bad?

    Learn why governments sanction some monopolies, such as monopolies over public utilities, and why these monopolies are good ... Read Answer >>
  2. What is a monopoly?

    Monopoly is a fun family game, but in real life, a monopoly can be dangerous to a country's economy. A monopoly occurs when ... Read Answer >>
  3. What are common examples of monopolistic markets?

    Discover what causes real instances of market monopoly, how it persists and where monopoly privilege is most common in the ... Read Answer >>
  4. What does it mean when a utility company has a natural monopoly on a market?

    Learn what it means when a utility company has a natural monopoly on a market and why natural monopolies are heavily regulated ... Read Answer >>
  5. How does a monopoly contribute to market failure?

    Read a simple overview of the theory of market monopoly, where it originated and some contemporary challenges to the classical ... Read Answer >>
  6. Why are monopolistic markets inefficient?

    Find out why general equilibrium economic models suggest monopolistic markets can lead to inefficiencies and why some economists ... Read Answer >>
Hot Definitions
  1. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  2. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  3. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  4. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  5. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  6. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
Trading Center