Types of Monopolies in Economics

by Keith Evans; Updated September 26, 2017
Telegraph poles in line, Pond Inlet, Baffin Island, Canada

Though you may associate monopolies with enormous, illegal entities that dominate some aspect of the economy, you likely interact with different types of monopolies every day. A monopoly is not always illegal and, in fact, some businesses and organizations can efficiently provide services when they are the only ones to do so.

Natural Monopolies

A natural monopoly exists when a variety of factors make competition unworkable, financially unfeasible or impossible. Many local telephone carriers have a natural monopoly in a certain area, as the extensive infrastructure necessary to support wired telephone service is too expensive for new competitors. Additionally, the new infrastructure would require unnecessary telephone poles and other unsightly equipment that local regulators would not allow. As a result, the existing local telephone company maintains a natural monopoly in its service area, with emerging competitors typically leasing time on the company’s network to resell to customers. Similar natural monopolies exist in local electrical services and cable providers, but governments often regulate natural monopolies to ensure fair practices and pricing for customers.

Geographic Monopolies

When only one business provides products or services to a local area, that business is a geographic monopoly. Typically, geographic monopolies emerge because the customer base is not large enough to support competition. Rural areas and very small towns may have only one gas station or grocery store, for example, because the population is too small to support more than one of these stores. Competitors do sometimes appear in these areas, but one of the competing businesses typically closes, reasserting the geographic monopoly.

Technological Monopolies

A business that's first to market a product or service may get a patent or copyright. That legal protection makes the business a technological monopoly. For example, if an electronics company would have a technological monopoly if it patents a new product, and competitors are prevented from offering the same product at different price points. Similarly, products with specific and very precise components, like electronics and pharmaceuticals, are subject to technological monopolies because competitors cannot create a functional competing product without violating the original company’s patent. In many cases, competitors may produce off-brand or knock-off products with similar components that do not deliver the same quality or effects as the original.

Governments Are Almost Always Monopolies

Governments must exist as monopolies by necessity, as constituents can't follow the rules of two simultaneous governing bodies. Some governments go as far as to provide retail stores and other services under tightly-controlled monopolies, like government-run alcohol sales and national health-care programs. In the U.S., government monopolies include local and national parks, police services, fire departments, municipal water and sewage services, government ID issuers and voter registration services. Though two governments may exert rule over a territory at the same time, as is typical during times of conflict or transition, constituents can't comply with rules of two separate governments for any extended period.

About the Author

Keith Evans has been writing professionally since 1994 and now works from his office outside of Orlando. He has written for various print and online publications and wrote the book, "Appearances: The Art of Class." Evans holds a Bachelor of Arts in organizational communication from Rollins College and is pursuing a Master of Business Administration in strategic leadership from Andrew Jackson University.

Photo Credits

  • DC Productions/Photodisc/Getty Images