Natural monopoly

A market structure in which one firm can supply an entire market at lower cost than multiple firms, usually because economies of scale make duplication inefficient.

Economies of scale: A reduction in average cost as a firm increases output. Large fixed costs spread across more customers can make one supplier cheaper than several.
Public utility: An essential service, such as water or electricity, often subject to public regulation. Utilities commonly combine high infrastructure costs with a case for monopoly provision.
Legal monopoly: A monopoly protected from competition by law, license, patent, or other government-granted exclusivity. Its exclusivity comes from legal protection, not necessarily lower costs from single-firm production.
Price regulation: Government rules that constrain the prices a firm may charge. Regulators use price limits to curb the market power of an efficient sole supplier.
John Stuart Mill: A nineteenth-century British philosopher and political economist whose work addressed political economy and social reform. Mill discussed industries where competition could not operate effectively because of their physical structure.
Subadditivity: A cost function is subadditive when one producer can supply total output at lower cost than separate producers. It gives the precise cost condition for a natural monopoly across relevant market demand.
Electric power distribution: The delivery of electricity from local substations through distribution networks to end users. Duplicating neighborhood wires is usually costlier than sharing one regulated network.
Monopoly: A market structure in which one seller supplies a product with no close substitutes. Natural monopoly is one explanation for monopoly, rather than the broader market outcome itself.
Rate of return regulation: A regulatory approach that limits a firm's allowed earnings relative to its capital investment. It has been used for utilities but can reward excessive investment in the regulated asset base.
Alfred Marshall: A British economist whose work helped establish modern microeconomics, including analysis of costs and industry organization. His analysis of increasing returns clarified why large-scale production can undermine competition.

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