Natural Monopoly
A market structure where a single firm can supply the entire market at lower cost than multiple competitors.
What is Natural Monopoly?
A natural monopoly exists in industries where high fixed costs and economies of scale mean a single producer can supply the entire market at lower average cost than two or more competing firms could. It is most common in infrastructure industries such as electricity transmission, water distribution, and railways, where duplicating the distribution network would be economically wasteful. Because natural monopolies lack competitive pressure, they are typically subject to government regulation — including rate-setting — or public ownership, to prevent the monopolist from charging excessive prices and restricting output below the socially optimal level.
Example
The local electricity distribution grid is a classic natural monopoly. Building a second set of power lines to compete with the existing utility would cost billions and be entirely duplicative. U.S. state public utility commissions therefore allow a single utility to operate the grid but regulate allowable returns — typically 9–10% on equity — and set retail rates to protect consumers from monopoly pricing.
Source: Investopedia — Natural Monopoly