Trade Barriers
Nicholas Messina
Econ201
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 markets supply. Some conditions that determine a monopolistic market is the fact there is only one firm competing and has entire control over supply of product with no close substitutes. The second is that there must be a high barrier to entry to explain why other firms have not yet entered the market.
What are some of the different types of barriers to entry that give rise to monopoly power?
Barriers to entry are defined as legal, technological, or market forces that may discourage or prevent potential competitors from entering a market. There are many different types of barriers that include government barriers, control of a physical resource, technological advancements, and large start-up costs. Governments may erect barriers that prohibits or severely limits new competitors. This is done in many cities and states that may allow a household to only use one certain energy, water or trash company to serve them. Also before the government started regulating restrictions on competitions, monopolies such as AT&T controlled the entire telephone service industry as well as Standard Oil Company controlled every aspect of the oil industry from refineries to transportation. Around the world, many governments still impose restrictions to control and limit what they think are key industries such as airlines, banks, and telephone companies. 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 worlds 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