Natural Monopoly Law and Legal Definition

Natural Monopoly is a monopoly resulting from a circumstance over which the monopolist has no power, as when the market is so limited for a product that only one plant is needed to meet demand. This tends to be the case in industries where capital costs predominate, creating economies of scale that are large in relation to the size of the market, and hence high barriers to entry; examples include public utilities such as water services and electricity. It is very expensive to build transmission networks (water/gas pipelines, electricity and telephone lines); therefore, it is unlikely that a potential competitor would be willing to make the capital investment needed to even enter the monopolist's market.