natural monopoly

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Natural Monopoly

A situation in which the barriers to entry for an industry or product are so high that it is not profitable for a second company to make an attempt. For example, an area may have only one utility company because it is prohibitively expensive to start another one. Governments generally regulate profits for natural monopolies to protect consumers.

natural monopoly

a situation where ECONOMIES OF SCALE are so significant that costs are minimized only when the entire output of an industry is supplied by a single producer so that supply costs are lower under MONOPOLY than under conditions of PERFECT COMPETITION and OLIGOPOLY. The natural monopoly proposition is the principal justification for the NATIONALIZATION of industries such as the railways. See MINIMUM EFFECT SCALE.
References in periodicals archive ?
Our observations from the Estonian publicly owned natural monopolies in several sectors do not suggest different behaviour patterns compared to privately owned ones.
216) The facial differences between the natural monopolies of the past with the natural monopolies of today should not be the basis that antitrust law simply dismisses the essential facilities doctrine as applicable to a certain case.
The time has come for natural monopolies to be under public control and for the City spivs and speculators to be shown the door.
But this must come with effective economic regulation to ensure the commercial discipline of airports which are natural monopolies," he concluded.
He calls for greater attention to market-based reform in health, education and natural monopolies, while stressing the need for civil liberties and a free press as the basis for economic growth.
virtual" or natural monopolies of goods, affecting the public
A set of special policies, including requirements to allow third-party access to infrastructure and restrictions on ownership of `upstream' and `downstream' businesses (in the electricity case, generation is `upstream' and retailing is `downstream') have been introduced to deal with natural monopolies based on essential facilities.
The author argues that the case for natural monopolies should be decided on the basis of "cost sub-additivity," which occurs when outputs can be produced at a lower cost by one firm than they can by multiple firms.
Given that natural monopolies will earn enormous profit if unchecked by the government, or they will not produce if they are forced to charge marginal cost pricing, what options are available to the government to provide services to its consumers?
Generation and retail services have characteristics that make them amenable to competition while transmission and the wire service portion of distribution are considered natural monopolies and lend themselves to regulation.
As RSW acknowledges, natural monopolies do not necessarily result in socially inefficient use of resources, but they raise that possibility (see Edlin, Epelbaum, and Heller 1996).
Even if the structure of cost and demand is such that these markets are not natural monopolies, the concept of sustainable prices can still provide a useful benchmark for Reserve Bank pricing policy.