Question

For a monopoly to persist, the market must be closed to entry. Identify and explain three means of doing so and provide an example for each.

Answer 1

Barriers to entry are factors that prevent or make it difficult for new firms to enter a market.

The existence of barriers to entry make the market less contestable and less competitive. The greater the barriers to entry which exist, the less competitive the market will be. Barriers to entry are an essential aspect of monopoly markets.Barriers to entry generally operate on the principle of asymmetry, where different firms have different strategies, assets, capabilities, access, etc. If all firms were symmetrical, then there would be nothing to choose between and competition would not exist.

there are some features of monopoly market-

1. Single seller

2. No close substitute

3. Price Maker

All these features directly indirectly based on Entry barriers for other firms into this market. Because of this restrictions -

1. there is single seller in the market. If there is no restrictions in entry then everyone will come into the market to earn profit then it will not be a monopoly because in this case multi sellers will be there.

For example - One canteen in a school/college.If there will be multi shops in school then it will not be a monopoly market to entry barriers are necessary for monopoly market.

2. There is no close substitute if everyone will enter into the market then probability of close substitute will be higher. so entry restrictions into the monopoly market support this feature of monopoly market.

For example - Green Apples in Rajasthan. If we bring green apples from Jammu or himachal and will sold at Rajasthan then in Rajasthan no close substitute of Green apples.

3. In monopoly market firm is price maker because there is no other seller.

For example- Green Apple in Rajasthan. Suppose a person bought Green Apples from Jammu 50 Rupees per KG. but he is selling 100 Rupees per KG in Rajasthan because there is Monopoly. So he can charge higher.