Natural monopoly
Definition. A natural monopoly exists where a single firm can supply the entire market at a lower average cost than two or more firms could, because very large economies of scale mean the minimum efficient scale is large relative to market demand. Utilities such as water and rail networks are examples.
Heavy fixed costs of infrastructure mean long run average cost keeps falling over the relevant range of output, so duplicating networks would be wasteful. This justifies regulating, rather than introducing competition into, such markets.
This term belongs to Monopoly in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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