Natural Monopoly
Plain definition
A market where one firm can serve the entire market at lower average cost than two or more firms could — typically because of huge fixed costs and economies of scale.
In economics
With a natural monopoly, the LRAC curve keeps falling across the relevant output range, so splitting production between firms would duplicate fixed costs and raise prices. Duplication is wasteful, so these industries (water, electricity distribution, rail networks) are usually regulated monopolies or public utilities rather than competitive markets.
Example
Laying two competing sets of water pipes down every street would double the fixed cost for no benefit — piped water is a natural monopoly.
A natural monopoly is confused with a monopoly created by barriers like patents. A natural monopoly arises from cost structure (falling ATC over market demand), not from legal protection — though governments often then grant it a legal monopoly and regulate its prices. Breaking it up would raise, not lower, costs.