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A legal monopoly is a monopoly that has been specifically sanctioned by law. For instance, the US Post Office has a legal monopoly on the right to put letters into mailboxes. The most common type of legal monopoly is the natural monopoly. Ideas about what constitutes a natural monopoly are prone to shift over time as new technologies or business processes emerge. For instance, electricity generation was once considered a natural monopoly and was therefore a legal monopoly. Today, electricity transmission is the legal monopoly in many markets, in conjunction with competitive electricity generation. The legal monopoly is ordinarily regulated to limit its exercise of market power. Services such as cable TV and natural gas that depend on a “last mile” to each customer tend to operate as a legal monopoly. |
