Question

Why is it important for natural monopolies to exist

Answer 1

A Natural Monopoly comes about when the barriers to entry are so high that A) it is almost impossible for other companies to start up a business because the sunk costs are so high and B) having only one company in this business is the only way to make a profit. Examples of these are Utility companies (ConEd here in New York). Just imagine how much it took to lay down the power lines, the water pipes, gas pies etc. and to maintain them, the initial investment and maintenance costs are huge. Even cable companies can sometimes be labeled as natural occurring monopolies in small market areas.

Monopolists of this kind are in fact the most efficient firms possible. The fear of monopolists is that once they get rid of their competitors, they will become inefficient and raise prices through the roof. This is not applicable to natural monopolies, however, as the lack of competitors does not really mean that competition itself does not exist.