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The analogy with a river doesn't work at all. Rivers don't act or engage in exchange. I see what you are saying on the most optimal path for water to flow, but

• logfromblammo 13y ago
  Monopoly is a single seller of a good or service. There is an economic definition that must be met for a "natural monopoly" to exist, which depends on the marginal cost of producing additional units and the fixed cost of maintaining the capital. Basically, just as you don't typically see two different rivers draining the same watershed, you don't see multiple firms serving the same natural monopoly market. That doesn't mean that it never happens; it just means that any challenger to the incumbent either displaces them entirely, acquiring their capital in the process, or goes out of business and yields its capital to the incumbent. The lowest energy state of the natural monopoly is a single firm. Excited states can also exist, and are necessary for transitions to occur, but these states are less economically efficient. Customers see higher prices, and firms see lower profits. But given that a monopoly is in itself inefficient, it can still be worthwhile for a challenger to attempt to displace the incumbent, especially if they can operate at lower costs. In a truly free market, the switch could be accomplished by an initial investment of sufficient size. In the context of the analogy, huge machines dredge a new channel for the river. For a time, water flows in both channels, but in the end, one dries up and you are left with one river again.