A Public Utility as an Example of a Natural Monopoly

Understanding Natural Monopoly

Natural monopoly refers to a situation where a market is monopolized due to the high costs associated with infrastructure and production. This makes it inefficient to have multiple providers in order to avoid redundancy and excess costs.

Public Utility as a Natural Monopoly

A public utility, such as a water company, falls under the category of a natural monopoly. The establishment and maintenance of infrastructure to provide water to an entire area can be very expensive. This high initial investment results in one company serving the entire region efficiently.

Implications of Natural Monopoly

In the case of a natural monopoly, government regulation is often necessary to ensure fair pricing and access to essential services. Without regulation, a natural monopoly could lead to exploitation of consumers due to lack of competition.