12/1/2023 0 Comments Monopoly defWilliam Baumol (1977) stated a natural monopoly is There would also be the inconvenience of having two firms dig up the road to lay a duplicate set of water pipes. To have two different companies offering water wouldn’t make sense as the average cost would be very high compared to just one firm and one network. It makes sense to have just one company providing a network of water pipes and sewers because there are very high capital costs involved in setting up a national network of pipes and sewage systems. Definition: A natural monopoly occurs when the most efficient number of firms in the industry is one.Ī natural monopoly will typically have very high fixed costs meaning that it is impractical to have more than one firm producing the good.Īn example of a natural monopoly is tap water.
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