Entry in pure monopoly is blocked. There are strong barriers that effectively block strong competition. Somewhat weaker barrier permit oligopoly-A market structure dominate by few firms. Still weaker barrier may permit the entry of fairly large numbers of competitors giving rise to monopolistic competition. No barrier means perfect competition. The barriers can be economic, legal due to ownership of resources or due to pricing in other strategies.
Following are the barriers to entry in monopoly;
1. Economies of Scale
Modern technology in certain industry is such that extensive economies of scale exist. This means that a firm expands output the average total cost keeps on declining in some cases it decline so much that a single firm will have to produce output for entire industry at lower average total cost. At that case the economies of scale act as barrier to enter industry. Small firm cannot enter the industry as small scale producer cannot achieve the lowest average total cost and resultantly cannot get profit necessary for survival a firm might start out big i.e. to enter as large scale producer so as to achieve the lowest average total cost but it cannot do so because new firms cannot get necessary funding’s that is why in certain industries like automobiles aircrafts and basic steel new firms do not enter easily.
2. Legal Barriers to Entry
The legal barriers to entry to monopoly include the patents and licenses.
Patent is the exclusive right of an inventor to use or allow any other person to use his or her invention. The basic purpose of patent of patent is to protect the inventor from those people who have not shared the struggles of inventor in invention. The total live span of patent is 20 years. Patent are reasons of existence of modern day joints.
In certain industries like telecommunication the government may also block entry by license for example in old time PTV only had the license for being the only television station in the country.
3. Ownership or Control of Essential Resources
A company might become a monopoly due to ownership of resources for example De bears have control over 63% of the world supply of rough cut diamonds. Similarly international nickel company owns 90% of the world’s known nickel reserved. Thus it becomes naturally monopoly in the nickel.
4. Prices and Other Strategic Barriers to Entry
In some cases a monopolistic might block entry by using certain strategies for example in 2000 Microsoft lost legal battle against net scape , Microsoft had developed its own browser, internet explorer and gave it free, its competitor Net scape could not do so, it was driven out of the browser market.
April 03, 2019