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Describe the characteristics of natural monopolies and the purposes of government regulations of these monopolies, such as utilities.

Delco_Electric_Company_(cropped).jpg
Delaware County Electric Company

Characteristics of Natural Monopolies


A natural monopoly is a situation where for technical or social reasons there cannot be more than one efficient provider of a good. Public utilities are usually considered to be natural monopolies. Examples include water services and electricity.
Natural monopolies tend to occur in cases where capital costs predominate. It is very expensive to build transmission networks (water/gas pipelines, electricity and telephone lines); therefore, it is unlikely that a potential competitor would be willing to make the capital investment needed to even enter the monopolist's market.

Electricity and Its Regulation from the Library of Economics and Liberty.
For an historical perspective, see TVA: Electricity for All focusing on efforts during the New Deal to bring electricity to rural areas in the South.


(1) Natural Monopoly Law and Legal Definition. US LEGAL. Retreived April 25 2012 http://definitions.uslegal.com/n/natural-monopoly%20/
(2) Delco Electric Company Image (Cropped). Wikimedia Commons. Retrieved April 25 2012 http://commons.wikimedia.org/wiki/File:Delco_Electric_Company_(cropped).jpg