[barry-cotter]

There’s extremely limited evidence that natural monopolies even exist. The economic definition is when the efficient number of sellers in a market is one. That may be the case for airframes, see the endless subsidies for Boeing and Airbus to avoid that happening. But even a market like microchips where a fab costs tens of billions of dollars supports multiple sellers.

[QuesnayJr]

Etsy is an example of a two-sided market (https://en.wikipedia.org/wiki/Two-sided_market) which can be natural monopolies.

[ryan_j_naughton]

Most of the time when two sided markets gain market power through a dominant position, they still aren't a monopoly. They are an oligopoly employing game theoric positions that are worse than perfect competition but far from a natural monopoly.

For example, even with Amazon there is Target and Walmart selling online and doing much more similar delivery times these days.

The network effect of a two sided market definitely is a barrier to entry, but there is so much capital out there that other large firms or firms with access to insane amounts of capital will also build a 2 sided market and create a network effect. It's why there is Shopify, eBay, Etsy, etc. All more like an oligopoly than a monopoly.

In contrast, true natural monopolies need barriers to entry that are so high that it just doesn't make sense or isn't even possible for another company to do it even if they have insane capital. The electricity grid prior to "deregulation" and the forcing of a more competitive market was a prime example and the grid being governed/run by an independent service operator.

[barry-cotter]

Exactly! If the threat of competition holds prices below the profit maximizing levels for a monopolist you may have a local monopoly but it’s not a natural monopoly.

[QuesnayJr]

A pure monopoly is a textbook notion, like a frictionless plane. In practice, there's more or less market power, and thus more or less of a role for government intervention to correct it.

[pintxo]

Extremely limited evidence?

How about water or electricity grids? Railroads? (City) Streets?

[barry-cotter]

There are examples of enduring competition of all of those bar city streets within a single city, never mind nationally. Even streets aren’t a natural monopoly. If they were you wouldn’t have patchwork metro areas divided up between different municipalities. The benefits of consolidated ownership would be so great that the Bay area would have unified like New York’s boroughs did to form the city of New York. Private towns and streets work fine. For very large examples see Davis in California or Gurgaon in India. The below quoted text is about utilities like water or electricity grids. The US does not have one freight railroad operator even now. If rail was a natural monopoly that would be unavoidable. NYC’s subway system was built by five or six companies. Local monopolies occur in lots of places but they can’t charge profit maximizing prices because of the threat of entry from other firms. The powerlessness of that threat is a necessary part of the definition of natural monopoly. If it doesn’t hold; if the threat of potential entrance of competitors holds down prices you don’t have a natural monopoly.

> The Myth of Natural Monopoly

> In his 1986 book, Direct Utility Competition: The Natural Monopoly Myth, he concludes that in those cities where there is direct competition in the electric utility industries:

> Direct rivalry between two competing firms has existed for very long periods of time — for over 80 years in some cities; The rival electric utilities compete vigorously through prices and services; Customers have gained substantial benefits from the competition, compared to cities were there are electric utility monopolies; Contrary to natural-monopoly theory, costs are actually lower where there are two firms operating; Contrary to natural-monopoly theory, there is no more excess capacity under competition than under monopoly in the electric utility industry; The theory of natural monopoly fails on every count: competition exists, price wars are not "serious," there is better consumer service and lower prices with competition, competition persists for very long periods of time, and consumers themselves prefer competition to regulated monopoly; and Any consumer satisfaction problems caused by dual power lines are considered by consumers to be less significant than the benefits from competition.

https://mises.org/library/myth-natural-monopoly

[pas]

I'd add that the FDA observed that market forces bring prices down basically in a very straight-forward linear way: https://www.fda.gov/about-fda/center-drug-evaluation-and-res...

We also know that as Google Fiber entered any city the incumbent ISP immediately decreased its price.

Natural monopoly is a strange concept. Its formal definition by Baumol: "[a]n industry in which multi-firm production is more costly than production by a monopoly". ( https://en.wikipedia.org/wiki/Natural_monopoly#/media/File:N... )

It sounds like it's almost true in every case where you are forced to duplicate components/processes/efforts/structures, plus even with diminishing returns economies of scale helps the big companies.

Of course why the big incumbents get complacent/inefficient, why they turn to regulatory capture instead of R&D, is a different question.