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85-handout - 23/10/2010 Monopoly and Barriers to Entry A2...

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23/10/2010 1 Monopoly and Barriers to Entry A2 Micro Economics tutor2u November 2010 Long Run: Barriers to Entry Barriers to entry are designed to block potential entrants from entering a market profitably Existing firms are known as incumbents New firms threaten the market share and monopoly rents of existing businesses Barriers to entry seek to protect the monopoly power of existing firms and therefore maintain supernormal (or abnormal) profits in the long run Barriers to entry make a market less contestable –i.e. they affect market structure in the long run
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23/10/2010 2 Types of Entry Barrier (1) (1) Structural barriers (Innocent Barriers) – due to differences in production costs and being in the market for some time Economies of scale (consider a natural monopoly ) Vertical integration (backwards and forwards) Control of essential technologies / commodities Expertise and reputation of the incumbent Brand loyalty
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85-handout - 23/10/2010 Monopoly and Barriers to Entry A2...

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