Sources of Monopoly Power and PC vs. M

The following are sources of monopoly power -

- Economies of scale (see earlier post) : When monopolist firms get big, their average costs can get very low for the industry, making competition by other difficult if not impossible.
- Patents / copyrights : The protect firms' intellectual property, and give them the incentive to innovate and to create g/s that make our lives better (i.e. medications, the new Glee song).
- Natural monopoly : In some industries, costs are so high that the market can only be profitable for one firm. If another firm entered, demand would be split and, because average costs are high, both would make losses. Thus, the government allows such "natural" monopolies to exist. Examples : gas and electricity companies.
- Control over supply : Firms that control what's effectively the whole supply of a good have a monopoly in that goods (i.e. De Beers and diamonds).
- Brand loyalty : Did you know a Kleenex is a facial tissue? Or a Hoover is a vacuum cleaner? Sometimes brand names become the product, leading to monopolies.
- Use of force / anti-competitive behavior : When a firm tries to prevent competition, it is acting in an anti-competitive manner. This is illegal, but difficult to prove legally. Example : Microsoft and it's software.

Pros and Cons of PC vs. M-
In PC, prices are low (derived from industry supply curve) and, in the long-run, only normal profit can be made. Furthermore, this type of market structure is both productively and allocatively efficient. In a monopoly, output is restricted, prices are "too" high, and the structure is inefficient. Both produce where MC=MR to maximize profits. Monopolies can achieve economies of scale which can drive prices down. Furthermore, monopoly profits could be directed to R&D which leads to technological advancement which is good for economic/potential growth. However, because prices are high, some consumers will not be able to afford the good.