![]() The most commonly cited examples of natural monopolies are utilities such as railroads, pipelines, electric power transmission systems and water supply systems. Once a single firm becomes established in an industry that is characterized by natural monopoly, it is very difficult for competitors to emerge because of the very high costs for production facilities (including infrastructure) that allow a scale of output equal to or greater than that of the existing monopolist and because of the uncertainty that they will be able to oust the existing monopolist. ![]() If there are multiple firms in an industry that is characterized by natural monopoly, all except the one that can attain the largest volume of output, and thus the lowest production cost, will generally exit the industry because they will not be able to compete on a price basis. Monopolies also exist because of sole access to some resource or technology and because of the use of non-market means to eliminate competition, including buying up competitors, colluding with suppliers or customers to discriminate against competitors, enacting legislation to restrict competition, threatening costly lawsuits or even engaging in physical violence. Economies of scale is the situation in which the cost to a company of producing or supplying each additional unit of a product (referred to by economists as marginal cost) decreases as the volume of output increases.Įconomies of scale is just one reason for the existence of monopolies. ![]() A natural monopoly is a monopoly that exists because the cost of producing the product (i.e., a good or a service) is lower due to economies of scale if there is just a single producer than if there are several competing producers.Ī monopoly is a situation in which there is a single producer or seller of a product for which there are no close substitutes. ![]()
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