1
Q
Assumptions
A
- Only one firm = pure monopoly
- Working monopoly = if a firm is responsible for over 25% of an industry’s sales.
- Barriers to entry maintain monopoly.
2
Q
Structural Barriers to entry:
A
Not deliberately erected.
1. Natural monopoly
===when only enough economies of scale exist for one firm.
2. Exit barriers (eg. Bethlehem steel had liabilities of $10 bn)
3. High cost of entering a market (can be behavioural too).
3
Q
Behavioural barriers to entry:
A
Deliberately erected by firms.. eg/.
- Advertising/brand loyalty
- brand proliferation.
- Legal restrictions (patents etc)
- Anti-competitive behaviour
- Loss leaders
4
Q
Why are monopolies bad?
A
- Not necessarily allocatively or productively efficient - just luck whether or not it is.
- X-inefficiency
- don’t NEED to be dynamically efficient.
5
Q
Why are monopolies good?
A
- Natural monopolies - at least someone is supplying the good (eg/. anglican water)
- Dynamic efficiency - firms want to maintain monopoly by staying ahead of any possible competition, plus they have the abnormal profit incentive/resources to do so.
- Can benefit from economies of scale more easily than firms in perfect competition.
- Pure monopolies avoid the wasteful duplication of research in an industry.
- Money spent in pursuit of maintaining monopoly may result in socially beneficial results through the sponsorship of sport or charity events etc.
6
Q
key evaluative idea
A
How narrowly do you define the market?
