A natural monopoly is a market structure in which there is a single firm that controls the majority of the market share and has the ability to dictate prices and terms of trade. This firm usually has such a dominant position due to its superior technological infrastructure, economies of scale, or control over a unique resource.

Characteristics of a Natural Monopoly:

• Control over majority of market share: The firm controls a substantial portion of the market, often over 50%, allowing it to influence prices and market conditions.
• Control over supply: The firm has the ability to control the majority of the supply, giving it the power to influence prices.
• High barriers to entry: High barriers to entry, such as economies of scale or control over a unique resource, make it difficult for new firms to compete.
• Significant control over pricing: The firm has the ability to set prices at its discretion, often above market equilibrium.
• Potential for exploitation: The firm can exploit its dominance to extract high profits, potentially harming consumers.

Examples of Natural Monopolies:

• Utilities: Electric power, water supply, telecommunications
• Postage services
• Certain oil and gas industries
• Pharmaceutical companies for specific drugs

Potential Issues:

• High prices
• Lack of innovation
• Limited choices for consumers
• Potential for abuse of market power

Government Responses:

• Antitrust laws: To prevent monopolies from exploiting their dominance.
• Regulation: To control prices and prevent discrimination.
• Subsidies: To promote competition and innovation.

It is important to note that:

• Not all natural monopolies are harmful. In some cases, they can be beneficial to society.
• The barriers to entry in a natural monopoly can be high, making it difficult for new firms to compete.
• Government intervention can help to address the potential issues associated with natural monopolies.