New firms in monopoly situations see opportunities to profit but do not often succeed. A monopoly is protected from competition because, unlike in perfect competition, the market has significant barriers to entry. In the case of a monopoly, these barriers are formidable enough to prevent new entrants from getting started in the market. There are five main types of barriers to entry: economies of scale, ownership or control of a key resource, strategic pricing, innovation, and legal barriers.
Economies of Scale
Ownership or Control of a Key Resource
In the United Kingdom, Wall's Ice Cream created a monopoly position in the ice cream market by supplying freezers to stores, free of charge—as long as the stores only stocked Wall's ice cream in them. In this case, the key resource was not an input or a process, it was prime space in the store itself. At its height, Wall's controlled just over 70% of the ice cream market, while its two biggest rivals combined had about 26% of the market. Even after the court ruled that Wall's could not make its freezers exclusive and had to allow stores to use half of the freezer space to stock rivals' products, Wall's maintained control of over 60% of the market.
The monopolist can also utilize price discrimination—the practice of charging different prices for the same product in different markets. Part of the case against Microsoft was that it was charging computer makers that featured Microsoft's web browser (Internet Explorer) a lower price for its operating system than it charged for manufacturers that featured a rival browser, such as Netscape Navigator. Selling at the firm's break-even point (or even at a loss) is not entirely illegal, and neither is price discrimination, but often it can hurt the company's image and dissuade customers. The United States and other countries do have anti-dumping laws in place that make it illegal for foreign firms to sell products in the country well below the price that firm would charge in their home country.
If a company can establish an innovation, as with new technology, it can end up with an initial monopoly because it is the only firm with the technological advantage. If the firm can keep its advantage over time, this monopoly can persist. This occurred when Apple introduced the iPhone, the first smartphone on the market with a touch screen. Apple dominated the market until other corporations caught up with the innovation. Either way, this innovation creates a barrier to entry for competitors.
Regarding the benefits of innovation for the overall economy, there are two arguments within economics. One position says this chance at having a temporary monopoly is the reason for innovation, and this is a crucial dynamic for a successful market economy. This argument stems from the work of Joseph Schumpeter, the first economist to write at length about the role of entrepreneurs and innovators. He saw their behavior as "creative destruction"—that as inventors found new and better ways of doing things, it drove the whole economy forward—and argued that established companies would also have to continue to innovate in order to maintain their position. In Schumpeter's point of view, monopolies in the short run will be innovated away in the long run as competitors continually look for an advantage over established companies. The other position argues that a monopoly by its very nature will stifle innovation. The monopolist will use its dominant position to keep rivals out of the market, and as a result, new ideas will not make it into the marketplace.
These are important points to consider because this debate occurs not only in economics but also within governments regarding how strict anti-monopoly policies should be, as well as the appropriate extent of legal barriers such as patents (the exclusive right of an inventor to use or allow others to use their invention, which creates a temporary monopoly) and copyrights (the exclusive rights of an artist and their estate to profit from their work).
A trademark is a symbol, word, or words legally registered or established by use as representing a company or product. It can be argued that trademarks are protected in order to provide information in the marketplace. When consumers see a trademark, they can be sure they are buying from the producer what they intend to buy, and the trademark is thus part of a company's brand. A company has a monopoly over its own brand, even if it is not a monopolist in the overall market. Trademarks can also create some interesting court cases, such as the one between Apple Corp., the record label for the Beatles, and Apple Computer, the technology giant. The case concerned the apple logo that Apple Computer used, which Apple Corp. said was too close to its own apple logo, as well as lingering effects between the two companies (and copyright concerns that the Beatles and band members' estates had) that made Beatles music unavailable on Apple's iTunes store for years. In 2006, a court in England ruled in favor of Apple Computer, and eventually relations warmed.
The government can also create a barrier to entry through restricting the issuing of licenses needed by suppliers. A license is official permission to conduct an activity. The government issues licenses to ensure some important services are profitable. Governments could potentially restrict a license to one supplier, as it does with the US Postal Service, which is the only entity with the license to deliver first-class letter mail. Another common example is the restricted number of taxi licenses. In New York City, a taxi has to have a medallion attached to it to be legal, and those medallions are tightly restricted. The limit in New York City is one taxi for every 600 people, giving the city around 13,500 taxi medallions. Even though the taxi industry has recently faced new competition in many places from ride-sharing companies such as Uber and Lyft, those companies also need licenses in order to legally operate in a city.