Natural Monopoly
Natural Monopoly
Level: AS Levels, A Level, GCSE – Exam Boards: Edexcel, AQA, OCR, WJEC, IB, Eduqas – Economics Revision Notes
Natural Monopoly
What is a Natural Monopoly
A Natural Monopoly occurs where the industry can only support one firm.
Characteristics of Natural Monopolies
- High start-up costs
- High fixed costs
- High barriers to entry
- Unique product or service
- The industry can only support one firm
Natural Monopoly Diagram
Analysis of Natural Monopoly Diagram
(Coming Soon)
Examples of Natural Monopoly
An example of a Natural Monopoly would be The London Underground. The cost of digging and maintaining the tunnels in this industry is extremely high. Therefore the industry can only have one firm providing this service. If another firm tried to compete with the London Underground, therefore causing both firms to share customers and profits. There would not be enough profit for both firms to survive and cover their costs in this industry.
Other examples of Natural Monopoly
- Water Companies
- Gas Network
- Train Lines
- Electricity Network
- Telecommunication Network
As Natural Monopolies are the only firms in the industry, they have a lack of competition. The government, therefore, needs to intervene to ensure these markets are regulated to protect the consumers best interests.
Regulation of Natural Monopolies
OFWAT – Regulates the water industry
OFGEM – Regulates gas and electricity industry
OFCOM – Regulates the communications industry
ORR – The Office of Rail and Road
Quick Fire Quiz – Knowledge Check
1. Explain what a Natural Monopoly is (2 marks)
2. Identify five characteristics of a Natural Monopoly (6 marks)
3. Draw and explain the Natural Monopoly diagram (8 marks)
4. Explain how the London Underground is a Natural Monopoly (6 marks)
5. Identify three other examples of a Natural Monopoly (3 marks)
6. Identify four types of regulation for Natural Monopolies (4 marks)
Next Revision Topics
A Level Economics Past Papers