ECON101 Lecture Notes - Lecture 23: Monopolistic Competition, Natural Monopoly, Car Rental

• School: University of Waterloo
• Department: Economics
• Course: ECON101
• Professor: Wokia Kumase

Document Summary

Natural or legal barriers prevent the entry of new firms. Price setters (some sort of market power) Economies of scale and natural barriers to entry can create natural oligopoly, similar to natural monopoly. Natural oligopoly: economies and scale and demand form a natural barrier to entry. A single firm can provide a product at lowest possible average cost (natural barrier) 2 firms can supply product at lowest possible price because they have lowest average cost of production. Ex. some cities only have 2 taxi companies, 2 car rental firms. Legal oligopoly: arises when legal barrier to entry protects small number of firms in the market. A legal oligopoly might arise even where the demand and costs leave room for a larger number of firms: small number of firms. Every firm has a sizable amount of market share (50/50, 70/30: competing at level of prices, ex. cell phone industry, banking industry.