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Not sure where you got your definition. The economic definition of a natural monopoly is where firms have increasing returns to scale. That means where firms c
by mushufasa 6y ago
Not sure where you got your definition.
The economic definition of a natural monopoly is where firms have increasing returns to scale. That means where firms can produce more product per unit cost as the volume sold of that product gets large. https://cs.stanford.edu/people/eroberts/cs181/projects/1997-98/microsoft-vs-doj/economics/returns.html https://cs.stanford.edu/people/eroberts/cs181/projects/1997-...
A good example is electricity -- it's super duper hard to put up electrical wires all around a country. But once the wires are up, it's not so hard to maintain them or extend them to cover more people over time.
Google and Facebook are perfect examples. The software engineer salaries ain't cheap to build their product, but once built the products can be scaled quickly at relatively low cost. Furthermore, their products' value itself has increasing returns to scale; the more people on a social network or using a search engine, the more valuable to advertise on them.
- baddox 6y agoThat’s a very simplified definition. I don’t think economists consider any market with significant barriers to entry and economies of scale to be a natural monopoly. From what I’ve seen, the term is usually used whenever the market actually has become a monopoly, or if it appears that the barriers to entry and economies of scale are so significant that the optimum number of firms is one.