BUSS1040 Lecture 5: Lecture 5 - Monopoly and Market Power
8 Oct 2018
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Monopolist has market power to determine the price in the market (make it a price maker as only firm in the market) Cost that must be incurred by a new entrant in the market that incumbents do not bear. Barriers to entry are legal or natural constraints that protect a firm from potential competitors. There must be some barriers to entry --> competition and entry is restricted by various mechanisms including: Control over an essential input/factors of production not available to other firms (know-how, have key resources to produce product/service) Monopolist might simply have a lower cost of production --> make them favourable (location, access to raw materials) Technology makes one producer more efficient than others. = results from a situation where a single firm can supply an entire market at lower cost than two or more firms could supply that market. Declining (long run) average total cost implies natural monopoly.
