What are the sources of monopoly power?

Answers

1. Legal barriers.
They may take form of statutory monopolies or patents statutory monopolies are those established by an act of Parliament. Patent monopolies is where a firm holding the patent is protected from competition from new firms for a period of time.
2. Economies of scale.
Is where the monopoly is already operating on a vast scale of production and enjoying technical economies of scale. New entrants into the market would have to achieve substantial market share before they could gain full advantage of potential economies of scale.
3. Product differentiation barriers.
This involves advertising and branding whereby the monopolist puts a product in a new brand in which the consumer is persuaded to be the best.
4. Transport cost and tariff barrier.
Tariffs may protect the domestic market from competition from foreign producers by artificially rising the price of the foreign product in the domestic market. If transport cost is high, only the firms which are able to undergo those costs will be left in the market.

OR

State the main sources of monopoly powers

1. Exclusive ownership and control of resources (factors of production)
2. Patent rights eg. beer brands like Tusker, soft drinks like Coca Cola etc.
3. Natural monopoly which results from economies of scale i.e minimization of average total cost of production. The firm could produce at the least cost possible and supply the market.
4. Market Franchise i.e. the exclusive right by law to supply the product or commodity; most firms that fall in this category arise from government policy eg. Kenya Railways
5. High (prohibitive) initial size and cost of capital – the initial cost of setting up a firm may be high and most potential firms find it hard to venture.
6. Collusion/mergers/cartels/contrived monopolies: purposely to control or dominate the market i.e. large firms may come together in agreement on the quantity of supply or prices to charge thus driving away other potential firms out of business eg. the oil producing and exporting countries (OPEC).

Jonmhumble answered the question on October 21, 2017 at 09:16

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What are the sources of monopoly power?

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