what is a natural monopoly 
a natural monopoly is a type of monopoly in an industry or sector with high barriers to entry and start up costs that prevent any rivals from competing as such a natural monopoly has only one efficient player this company may be the only provider of a product or service in an industry or geographic location natural monopolies can arise in industries that require unique raw materials technology or similar factors to operate understanding natural monopoliesa natural monopoly becomes a monopoly over time due to market conditions and without any unfair business practices that might stifle competition it generally happens when there are high start up costs or powerful economies of scale that come with conducting a business in a specific industry these barriers can prevent potential competitors from entering the market there are two main factors that can lead to this type of monopoly the natural monopoly of a single large producer is also the most economically efficient way to produce a good or service in question this is not due to large scale fixed assets or investments but can be the result of the simple first mover advantage increasing returns to centralizing information and decision making or network effects an example is electricity transmission where once a grid is set up to deliver electric power to all of the homes in a community putting in a second redundant grid to compete makes little sense some monopolies use tactics to gain an unfair advantage by using collusion mergers acquisitions and hostile takeovers collusion might involve two rival competitors conspiring together to gain unfair market advantage through coordinated price fixing or increases special considerationsthere are regulatory agencies in each region to serve as a watchdog for the public when it comes to government approved natural monopolies utilities are typically regulated by the state run departments of public utilities or public commissions the u s department of transportation has broad responsibilities for the safety of travel for railroads while the u s department of energy is responsible for the oil and natural gas industries keep in mind though that no equivalent agencies in the u s have been empowered to similarly regulate tech and information monopolies nor are they governed as common carriers though this may be a trend in the future just because a company operates as a natural monopoly does not explicitly mean it is the only company in the industry the company might have a monopoly in one region of the country cable companies for example are often regionally based although there has been consolidation in the industry creating national players advantages and disadvantages of natural monopoliesone of the benefits of natural monopolies comes from the use of an industry s limited resources efficiently to offer the lowest unit price to consumers they can serve a good purpose when a single company can supply a product or service at a lower cost than anyone else and at a volume that can service an entire market society can benefit from certain natural monopolies for instance multiple utility companies wouldn t be feasible since there would need to be many distribution networks such as sewer lines electricity poles and water pipes for each competitor since it s economically sensible to have utilities operate as natural monopolies governments allow them to exist but the industry is heavily regulated to ensure that consumers get fair pricing and proper services 12one of the main drawbacks to natural monopolies is that it cuts out the competition and takes away choice from consumers this means that customers can only get certain goods and services from one provider having a natural monopoly in place bars other potential players from entering the market this is due to the high startup costs associated with doing business because there is only one player in the market regulation may be an issue especially when it comes to monopolies that aren t approved or run by the government as such entities may abuse their power increase prices and provide poor quality customer service provide goods and services at lower costs than rivalseconomically sensibleno competitionhigh startup costs and barriers to entrylack of regulation may lead to abuse of power higher pricing and poor customer serviceexamples of natural monopoliescompanies that have a natural monopoly may sometimes exploit the benefits by restricting the supply of a product or service inflating prices or exerting their power in damaging ways other than through prices under the common law many natural monopolies operate as common carriers whose business is recognized as having risks of monopoly abuse but allowed to do business as long as they serve the public interest common carriers are typically required to allow open access to their services without restricting supply or discriminating among customers and in return are allowed to operate as monopolies and given protection from liability for potential misuse by customers the following are some industries that have natural monopolies more modern examples of natural monopolies include social media platforms search engines and online retailing companies such as meta formerly facebook google and amazon have built natural monopolies for various online services due in large part to first mover advantages network effects and natural economies of scale involved with handling large quantities of data and information unlike traditional utilities these types of natural monopolies so far have gone virtually unregulated in most countries 