How does a natural monopoly differ from a firm that becomes a monopoly due to network effects?
What will be an ideal response?
Natural monopolies arise because of economies of scale—the firm's ATC curve decreases over the relevant range of output. Network effects arise from the benefits conferred on consumers, and does not affect costs or economies of scale, which are related to the firm. There are some goods that feature both economies of scale and network effects, such as operating system software and telephone networks.
Economics