ajaz_eco_204_2012_2013_chapter_16_Market_Power

Barriers to entry some firms have total or near total

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Unformatted text preview: large number of product characteristics (see pull down menu) ranging from scent, use, and toughness to indoor/outdoor use, “splashness”, and room. Barriers to Entry: Some firms have total or near total market power because they have erected barriers to entry and kept other firms out (take ECO 310 for a deeper treatment of this topic). Of course, the “monopoly” will argue that other firms choose not to enter because they can’t compete with the monopolist: the monopolist is so because it is “better than everybody else”. That said, erecting barriers to entry (BTE) is a time honored way to gain market power, thwart competition, and charge higher than competitive prices. Adam Smith recognized this in The Wealth of Nations (check out other classic books at the Library of Economics and Liberty): “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” To see the rationale for BTE look at the following graph which shows a competitive firm in the long run (for simplicity we show a firm with decreasing returns): $ A COMPETITIVE FIRM MARKET $ In the long run, all competitive firms are earning zero profit...
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This document was uploaded on 01/19/2014.

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