Natural Monopolies: Why Some Markets Have Only One Supplier

Water pipes, power lines, and railways are expensive to duplicate. That makes competition hard — and regulation necessary.

By Iris Penhaligon | Oct 18, 2026 | 5 min

Imagine three companies each laying their own water pipes down every street. It would be wildly expensive and wasteful. In some industries, it is simply cheaper for one firm to serve the whole market.

Economists call these natural monopolies.

I What makes a monopoly natural

A natural monopoly arises when the fixed cost of building infrastructure is very high and the extra cost of serving one more customer is low. Average costs keep falling as output rises, so one large provider is more efficient than several small ones.

II Common examples

— Water and sewerage networks
— Electricity and gas transmission and distribution grids
— Railway track
— Local fixed-line telecoms infrastructure, historically

III The problem

An unregulated monopoly can charge high prices, underinvest, and offer poor service, because customers cannot switch. Governments therefore either own these networks directly or regulate private owners.

IV How they are regulated

Regulators often cap prices or allowed returns, set investment and service standards, and require network owners to give competing retailers fair access. In electricity, for instance, many countries separate the monopoly grid from competitive generation and retail supply.

V Technology can change the picture

Mobile networks and satellite internet have introduced competition into telecoms that once looked like a natural monopoly. Rooftop solar and batteries are slowly doing something similar in electricity.

This is general educational information about economics, not financial, investment, or tax advice. Consult a qualified, licensed professional before making financial decisions.

I What makes a monopoly natural

II Common examples

III The problem

IV How they are regulated

V Technology can change the picture

Further reading