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Answer:1. High Costs Scare Competition: One cause of natural monopolies are barriers to entry. This is usually as a result of high costs. Railroads are a well-known example.
2. Low Potential Profits Are Unattractive to Competitors: Potential profits are a key indicator to potential businesses. If monopolies are making small profits, it is not worth a competitor’s time and money to try and take a small share of the market.
3. Ownership of a key resource: Monopolies can arise when one business owns a key resource. These are generally physical resources, such as diamonds. For example, if there is only one diamond mine in the country, the business that owns it will be able to achieve a monopoly. This is how De Beers controlled the diamond industry throughout the 20th Century.
4. Patents: Monopolies can arise when governments grant a patent to businesses. This is a form of intellectual property that gives the owner the legal right to be the sole producer of a product.
5. Restrictions on Imports: Import quotas, tariffs, and other trade restrictions can limit domestic competition. In some cases, this can create monopolies. If cheaper foreign competition is unable to enter the market, there are fewer pressures on domestic companies.
6. Baby Markets: During the infancy of a market, the first entrant will be able to establish an initial monopoly position.
7. Geographic Markets: Geographic monopolies can be characterised by the sole presence within a local market. For example, there may only be one restaurant in the local town. If you want a meal out, you may have to travel half an hour to the nearest restaurant. When considering the local market; it can be considered as a monopoly.
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