Natural Monopoly (Characteristics and Examples)

The natural monopoly is the condition that occurs in the market in which a single company is positioned as the largest and almost the only supplier of a product, good or service.

This situation is characterized by null and non-existent competition. Its predominance over any other company that could market similar products is due to several reasons:

• Lower cost to supply market needs.
• Unsurpassed product quality by any potential competitor.
• Most advanced technology.
• Better infrastructure and Logistics in product distribution.
• Greater productive capacity.
• Serve markets with difficult access.
• The company is the only provider of the good or service that it markets.

In other words, a monopoly can be called natural when a company markets its products with better quality and cheaper prices than those of its possible competitors, whom it displaces while its production is positioned as the preferred one by all consumers.

This being the case, it is feasible to affirm that this is a

type of monopoly, where the product of a single company supplies the entire market demand, completely displacing any competition.

The company that holds the natural monopoly may be public sector or private sector, but in both cases and if some type of competition arises, it would easily overcome it and maintain its leading position, given its operating conditions.

The natural monopoly it has no serious consequencess for consumers since the company will always take care of its market share, directing efforts to produce with the same or better attention and service, taking care of your image before the public and, therefore, your privileged permanence in your preference.

Characteristics of a Natural Monopoly

Generally the natural monopoly occurs in the provision of public services, such as the supply of electricity, domestic gas, water, telephony, underground transportation and the like. They will require a robust public infrastructure and cover a wide distribution in the territory.

For a company to be classified as its possible competitor, it requires investing large amounts of money both in technology and in infrastructure, this is not something profitable, especially due to the difficulty in offering prices or conditions that attract the customers of your rival already established.

Natural monopolies are characterized by being:

• A type of monopoly currently in force
• A single company that covers the entire demand required by the market
• A company equipped with a technology and infrastructure difficult to reach by any other company in the sector it serves
• Mainly present in the service sector
• Public, private or mixed companies
• Companies with low production cost that offer cheap prices
• High investment in technology and infrastructure
• Unique in the sector, they do not have companies that can be considered as competitors

Examples of a Natural Monopoly

Some examples of natural monopoly that can be mentioned are given in companies of:

• Administration and management of public transport services, such as railways and the subway
• Management and administration of communication channels such as ports, airports, railways, highway and highway tolls and the like
• Administration, management and distribution of basic services such as fixed telephony, water, gas, electricity
• Exploitation of natural resources and highly scarce inputs such as oil, uranium, coltan and the like
• High and advanced technology goods and productssuch as computer systems and equipment, high-end cell phones, nanotechnology, nuclear technology, robotic surgery equipment, and the like

The latter can occasionally be produced not only by natural monopolies, there are also cases of duopolies and in a few oligopolies when they are produced by two companies or a few other companies, respectively.