The market problem with a natural monopoly is that there is no competition. Without competition the benefits of the market are not available. For example, with healthy competition the prices will have value and producers will try to be as efficient as possible. With a natural monopoly the producer does not have any reason to try to make operations efficient, and they can charge a high price. A natural monopoly can occur when there are many challenges to entering that market. For example, if a company is the only one that has the materials to make a good, or if the startup cost is extremely high, then that company which is able to enter the market will remain alone. This creates the natural monopoly situation.
In the age of information technology there are natural monopolies which are created by companies on purpose. An example of this is preventing competitor products from working properly. Microsoft was accused of trying to create a monopoly with its browser, Internet Explorer, for example. Because of this accusation, Microsoft had to ensure that there were alternative options that were compatible with its operating systems so that there would be healthy competition.
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The best recommendation for a natural monopoly is to try to introduce competition. In order to do this there need to be new companies which have the same product or a good substitute. With other companies competing in the market for the customer’s attention the company that had a natural monopoly cannot just charge a high price, offer poor service, or be inefficient. With competition there are incentives to offer better value than other companies that are producing the same product. If the natural monopoly is caused by barriers like high costs, then government or other authorities may need to support competition by providing loans or securities to companies that can become new competitors.
