Natural Monopoly

Definition

A natural monopoly is a type of monopoly that arises due to economies of scale, where one firm can produce goods or services at lower costs than multiple smaller firms. This makes it more efficient for society if there is only one producer in the market.

Related terms

Economies of Scale: These occur when an increase in production leads to lower average costs per unit produced.

Public Utilities: Natural monopolies often include public utilities such as water supply, electricity distribution, or gas pipelines.

Regulation: Due to their potential abuse of power, natural monopolies are often subject to government regulations aimed at protecting consumers' interests.