Some industries have investment costs which are so high that if more than one firm tries to supply the same market, all except one (the one with the deepest pockets) will be driven into bankruptcy, because none will be able to make a profit. Industries with higher investment costs tend to have less competition (compare airplane manufacture with a lawnmowing service).

If that ideal size is large enough to supply the whole market, then that market is a natural monopoly.ДЄll industries have some costs of investment which must be met for firms to enter them - for example, building a widget factory to enter the market for widgets. Companies that grow to take advantage of economies of scale often run into problems of bureaucracy these factors interact to produce an 'ideal' size for a company, at which the company's average cost of production is minimised. It may also depend on control of a particular natural resource. This tends to be the case in industries where capital costs predominate, creating economies of scale which are large in relation to the size of the market, and hence high barriers to entry examples include water services and electricity. Natural monopolies arise where the largest supplier in an industry, or the first supplier in a local area, has an overwhelming cost advantage over other actual or potential competitors. Natural monopolies are often contrasted with coercive monopolies, in which competition would be economically viable if allowed but potential competitors are barred from entering the market by law or by force. In economics, a natural monopoly is a persistent situation where a single company is the only supplier of a particular kind of product or service due to the fundamental cost structure of the industry.

Natural monopoly