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Unformatted text preview: Chapter 15; Monopolies Why Monopolies Arise Monopoly: Sole seller of its products and has no close substitutes Barriers to entry: Monopoly remains because other firms cannot enter and complete Three sources of Barriers to Entry: 1. Monopoly resource: key source is owned by a single firm 2. Government regulation: government gives a single firm exclusive right to produce some good or service 3. The production process: One firm can produce output at a lower cost Monopoly Resources Simplest way for monopoly is when single firm owns a key resource If there is only one source of a resource and it is impossible to get anywhere else, owner has monopoly on that source Monopolist can demand a high price, even if marginal cost is low Few examples of firms that own a resource with no close substitute Government Created Monopolies Government grants a monopoly because doing so is viewed in the public interest Patent and copyright are two important examples i.e.: copyright make a novelist a monopolist in the sale of her novel Natural Monopoly Natural Monopoly: when a single firm can supply a good Or service to an entire market at a lower cost than two or more firms can When a firm is a natural monopoly, it is less concerned about new entrants eroding its monopoly power Size can determine a natural monopoly As market expands, natural monopoly can evolve into a more competitive market...
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