A
natural monopoly is a
monopoly in an industry in which it is most efficient (involving the lowest long-run average cost) for production to be permanently concentrated in a single firm rather than contested competitively. This market situation gives the largest supplier in an industry, often the first supplier in a market, an overwhelming cost advantage over other actual and potential
competitors, so a natural monopoly situation generally leads to an actual monopoly. This tends to be the case in industries where
capital costs predominate, creating
economies of scale that are large in relation to the size of the market, and hence creating high
barriers to entry; examples include
public utilities such as
water services and
electricity.