What characterizes a natural monopoly?

A natural monopoly is characterized by the unique cost structure of certain industries, particularly those where the demand for a good or service is satisfied most efficiently by a single supplier. This occurs mainly in industries with high fixed costs and low marginal costs, which makes it economically impractical for multiple firms to operate. For instance, utility companies such as water and electricity providers often exemplify natural monopolies because the infrastructure required to deliver these services is expensive to build and maintain.

In this context, ownership of essential raw materials aligns with the idea of a natural monopoly, as having control over critical resources can lead to a situation where only one firm is best suited to serve the market. While state control, high market entry costs, and government pricing enforcement may impact how monopolies operate, these factors do not define the essence of what a natural monopoly is. The defining characteristic is that a single firm can most efficiently provide the service, which is primarily rooted in the cost structure related to the ownership of essential resources.