One might think that if the monopolist companies get higher profits other entrepreneurs. They would like to invade your market to obtain also greater benefits. However, as we said earlier, in monopoly markets there are barriers to entry.
This means that there is some kind of impediment that hinders the entry of new companies into these markets, such as economies of scale in production (activities where it is not possible to produce on a small scale), technological superiority (activities where development is necessary). Technology difficult to achieve for other companies), control of resources needed for production (for example, geographic location or control of a resource, such as oil) and restrictions imposed by legal regulations (for example, the concession from a hostel on the beach).
Economies of scale
Monopolies arise in markets where fixed costs (that is, those that do not depend on the amount produced by the company) are very high. This means that the least expensive way to supply this market is to concentrate production in a single company, and the resulting monopoly is called a natural monopoly. Examples: water, gas by pipe, etc. In Uruguay, natural monopolies are state-owned. In other countries there has been a trend towards privatization, with the regulation of such natural monopolies in private hands becoming the central issue.
Monopolies may arise in markets where a company maintains a sustained technological gap over its potential competitors. However, technological superiority does not always function as a barrier to entering a market, or only for a short period, since competitors can eventually imitate the leader’s technology or improve their own through further research. When a monopolist controls a resource or a crucial productive factor for an industry, it can prevent other companies from entering the market. A possible example is that of bottled natural mineral water. If a company owns the place where the water source is
Control of resources needed for production:
The exclusive control of the natural resource makes it monopolistic. Although for many consumers gasified drinking water can be a perfect substitute for the previous one, in general we can say that it does not have satisfactory substitutes. Of legal origin is through patents and copyrights. The patents exist to protect the one who makes an invention, giving him the right to benefit from the exclusive production of it for a period of time and thus recover the cost that the company invested in developing the innovation. It is very common in the pharmaceutical sector. In Europe patents for inventions last 20 years, in the United States 17 years and in Uruguay 15 years.
The restrictions imposed by the State
In many cases it is the State that imposes monopolies. State licenses or concessions prevent the legal existence of other companies. For example, in the concession for the construction of a bridge or for the maintenance of a road, or for garbage collection, the State grants, through a tender, the exclusive exploitation of a company. In other cases, exploitation is legally granted to a public company, such as ANCAP in the oil refinery.
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