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06/28/2017  

Natural Monopoly

By nature, the core infrastructure in a modern economy is a natural monopoly. The most commonly cited examples of natural monopolies are infrastructure facilities such as toll roads, airports, ports, pipelines, electric power transmission systems and water supply systems.

From a theoretical point of view, an industry is said to be a natural monopoly, if over the entire relevant range of outputs, the firms cost function is sub-additive (economies of scale).

By definition, a natural monopoly predominantly occurs within the infrastructure industry. The NMX global infrastructure indices are designed to enable access to the inherent risk and return profile of global core infrastructure and hence to a portfolio of natural monopolies.

Core infrastructure assets exhibit the following characteristics:

 

  • Attractive risk and return characteristics
  • Long term stable cash flows (revenues) through asset backing and protected market position
  • Highly creditworthy counterparties
  • Potential diversification benefits
  • Low exposure to changes in the business climate
  • Linkage to long-term GDP Growth


For an explanation of the terms Monopoly vs. Natural Monopoly please follow the link.

 


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