There's Nothing Natural About `Natural' Monopolies

The old concept in economics of "natural" monopoly refers to an industry where the technological advantages of large-scale production preclude efficient competition among smaller companies. The alleged superiority of bigness has been used in most countries to justify government ownership of many industries, since state monopolies are supposed to do a better job than private ones looking out for the public interest. Although claims about natural monopoly continue to influence public policies and academic discussions, this concept has become largely irrelevant to modern dynamic economies.

The growth of global competition implies that even when large-scale production is most efficient, companies in small nations are no longer restricted to the inefficiently small scale of their limited domestic market. They can increase production enormously by operating in several nations. Chilean electric power companies, for example, have raised their profits and expanded production out of their small domestic market by operating in other Latin American countries.