A natural monopoly is a monopoly in an industry in which high infrastructure costs and other barriers to entry relative to the size of the market give the largest supplier in an industry, often the first supplier in a market, an overwhelming advantage over potential competitors. Specifically, an industry is a natural monopoly if a single firm can supply the entire market at a lower long-run average cost than if multiple firms were to operate within it. In that case, it is very probable that a company (monopoly) or a minimal number of companies (oligopoly) will form, providing all or most of the relevant products and/or services. This frequently occurs in industries where capital costs predominate, creating large economies of scale in relation to the size of the market; examples include public utilities such as water services, electricity, telecommunications, mail, etc. Natural monopolies were recognized as potential sources of market failure as early as the 19th century; John Stuart Mill advocated government regulation to make them serve the public good.
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Natural monopolies in the context of Georgism
Georgism, in modern times also called Geoism, and known historically as the single tax movement, is an economic ideology holding that persons should own the value that they produce themselves, while the economic rent derived from land—including from all natural resources, the commons, and urban locations—should belong equally to all members of society. Developed from the writings of American economist and social reformer Henry George, the Georgist paradigm seeks solutions to social and ecological problems based on principles of land rights and public finance that attempt to integrate economic efficiency with social justice.
Georgism is concerned with the distribution of economic rent caused by land ownership, natural monopolies, pollution rights, and control of the commons, including title of ownership for natural resources and other contrived privileges (e.g., intellectual property). Any natural resource that is inherently limited in supply can generate economic rent, but the classical and most significant example of land monopoly involves the extraction of common ground rent from valuable urban locations. Georgists argue that taxing economic rent is efficient, fair, and equitable. The main Georgist policy recommendation is a land value tax (LVT), the revenues from which can be used to reduce or eliminate existing taxes (such as on income, trade, or purchases) that are posited to be unfair and inefficient. Some Georgists also advocate the return of surplus public revenue to the people by means of a basic income or citizen's dividend.