Therefore, there would be no point in conduction business with multiple competitors. With more competitors, there is competition over customers and resources, which pushes up prices beyond what the customer would be willing to pay.
For instance, utilities, railways, and other such industries can offer a service or product at a price that is lower than what would be achieved if there was competition.
In part, this is due to the efficiencies that economies of scale offers. In short, natural monopolies exist because it is able to provide a product or service at a lowerĬost than a competitive market would offer. Therefore, other firms do not want to enter the market because there is no profit to be made. If two companies were to build and offer separate lines, the costs would be higher than what they would be under a monopoly. To build new sewers or power lines would be costly, inefficient, and impractical. This is because the cost to build another track would be over and above what a competitor would make back in profit. This derives from the fact that its creation originates from variables that are not man-made.įor instance, railways are a prime example of a natural monopoly. One type of monopoly is the natural monopoly, which is called ‘natural’ because there is no direct government involvement. So let us look at the 3 types of monopoly below: 1. All three have unique characteristics and causes. There are three types of monopoly: Natural, Un-natural, and State. Not all monopolies are illegal, but monopolies that engage in anti-competitive behavior can be subject to legal action under antitrust laws.Monopolies can form through several means, including mergers and acquisitions, exclusive contracts, and natural barriers to entry such as economies of scale or patents.Monopolies can lead to higher prices, reduced output, and decreased consumer welfare.A monopoly is a market structure in which a single firm is the sole seller of a product or service, without any close substitutes.
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