WHY MONOPOLIES ARISE
A firm is a monopoly if it is the sole seller of its product and if its product does not have close substitutes. The fundamental cause of monopoly is barriers to entry: A monopoly remains the only seller in its market because other firms cannot enter the market and compete with it. Barriers to entry, in turn, have three main sources:
• A key resource is owned by a single firm.
• The government gives a single firm the exclusive right to produce some good or service.
• The costs of production make a single producer more efficient than a large number of producers.
Let’s briefly discuss each of these.
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