What is the difference between a pure monopoly & a natural monopoly?
A market in which one company has control over the entire market for a product, usually because of a barrier to entry such as a technology only available to that company.
An industry where the most efficient production is through a monopoly.
In economics, the term natural monopoly is used to refer to two different things. This has been a source of some ambiguity in discussions of "natural monopoly."
The two definitions follow:
An industry is said to be a natural monopoly if one firm can produce a desired output at a lower social cost than two or more firms—that is, there are economies of scale in social costs. Unlike in the ordinary understanding of a monopoly, a natural monopoly situation does not mean that only one firm is providing a particular kind of good or service. Rather it is the assertion about an industry, that multiple firms providing a good or service is less efficient (more costly to a nation or economy) than would be the case if a single firm provided a good or service. There may, or may not be, a single supplier in such an industry. This is a normative claim which is used to justify the creation of statutory monopolies, where government prohibits competition by law. Examples of claimed natural monopolies include telecommunications, water services, electricity, and mail delivery. Some claim that the theory is a flawed rationale for state prohibition of competition.
Althought, in recent years, telecommunications is no longer a 100% monopoly with the advanced development of high-speed wireless networks. The Singapore government also announced that the postal market in Singapore will soon be open to private competition. And in India, the postal market has been semi-protected from competition following the performance of private operators such as FedEx, UPS and TNT.
An industry is said to be a natural monopoly (also called technical monopoly) if only one firm is able to survive in the long run, even in the absence of legal regulations or "predatory" measures by the monopolist. " It is said that this is the result of high fixed costs of entering an industry which causes long run average costs to decline as output expands (i.e. economies of scale in private costs). a monopoly is when a business giant buys out others or scares them out of business. Usually they drop their rates so low that no one goes anywhere else and the smaller competitors can not afford to go that low (ex: john d. rockefeller). They do anything possible till they are the only ones in a particular industry. A natural monopoly is like power companies. There are usually only one or two per area because of laying lines. You do not want power lines EVERYWHERE, so only one or two companies can operate in an area. Same with water lines. Monopolies are illlegal, natural monopolies are not. More Related Questions & Answers...