Title: How Monopolies Form: Barriers to Entry – Principles of Economics 2e
Headings: How Monopolies Form: Barriers to Entry
How Monopolies Form: Barriers to Entry
Learning Objectives
Natural Monopoly
Control of a Physical Resource
Legal Monopoly
Promoting Innovation
Intimidating Potential Competition
Summing Up Barriers to Entry
Barriers to Entry
Key Concepts and Summary
Self-Check Questions
Critical Thinking Questions
Problems
Glossary
barriers to entry

Content: These profits should attract vigorous competition as we described in Perfect Competition, and yet, because of one particular characteristic of monopoly, they do not. Barriers to entry are the legal, technological, or market forces that discourage or prevent potential competitors from entering a market. Barriers to entry can range from the simple and easily surmountable, such as the cost of renting retail space, to the extremely restrictive. For example, there are a finite number of radio frequencies available for broadcasting. Once an entrepreneur or firm has purchased the rights to all of them, no new competitors can enter the market. In some cases, barriers to entry may lead to monopoly. In other cases, they may limit competition to a few firms. Barriers may block entry even if the firm or firms currently in the market are earning profits. Thus, in markets with significant barriers to entry, it is not necessarily true that abnormally high profits will attract new firms, and that this entry of new firms will eventually cause the price to decline so that surviving firms earn only a normal level of profit in the long run. There are two types of monopoly, based on the types of barriers to entry they exploit.