What are some of the different types of barriers to entry that give rise to monopoly power? Give an example of each. Should government let monopolists exist or not? What are the benefits of monopoly market structure and what are those shortcomings related to monopoly? What is your opinion? (At least two pages and write down the answers to each question asked)
In a perfectly competitive market, there are many firms, none of which is large in size. In contrast, in a monopolistic market there is only one firm, which is large in size. This one firm provides all of the market's supply. Some conditions that determine a monopolistic market is the fact there is only ...view middle of the document...
When a company can control a scarce physical resource, other firms will have a hard time competing in the same market when access to resources needed for production is limited. Some examples of this include the DeBeers, a South African firm that controls most of the world’s diamond mines and essentially controls the price of diamonds. Technological advancements or extreme spending in research and development is another barrier for new firms. Microsoft had a monopoly on computer operating systems for a long time because it is technologically difficult for another firm to produce a similar product. Firms making new pharmaceuticals and software products create a unique product that is hard to replicate.
Should government let monopolists exist or not?
The first major monopoly was the Standard Oil Company and the main boon to monopolies is the fact that they can price-fix, have poor customer relations, and do whatever they would like in the market without consequence. In this respect, I believe that monopolies should be broken apart. Even without government interference, companies are constrained by consumer demand, the availability of substitutes, and the threat of entry from new firms. Even with these constraints, firms have still created monopolies in rare cases. People then turn to the government to regulate these firms by breaking them up or regulating profits. Although these actions may have benefits, it also reduces the drive of businesses to innovate and compete against the monopoly. Government regulations also create legal barriers to entry which can dissolve smaller competitors as well....