Financial Glossary Header Image

Natural Monopoly

Updated on March 19, 2023

A situation of natural monopoly is where there is only one seller due to various natural market forces like lack of competition due to extensive capital investment, government policies, nature of the product or service provided that has created a niche for itself and is not available with other sellers, etc.

These situations prevent the existence of multiple players in the market which can give rise to better competition and ultimately benefit the consumers. The natural monopolistic market is usually heavily regulated to protect the interest of the investors from unfair trade practices in the absence of competition.

Natural monopolies are often a result of huge capital investments that deters the majority of private players from entering such businesses. The other possible reasons for natural monopolies are the large scale of operations that are needed for the business to sustain or heavy government regulations where strict adherence to such regulations makes it difficult for the business to survive or flourish.

Examples of natural monopoly

Some of the popular natural monopolies are in utiliies like electricity or water supply corporations typically owned by the government.