Examples for monopoly include Microsoft, train lines and electricity providers. Sources of monopoly power
Economies of scale: these benefit monopolists as they have large firms, whereas new entrants would face higher average costs, as they cannot exploit bulk buying, specialisation etc., as much. Anti-competitive behaviour: monopolists adopt restrictive practices, legal or illegal. For instance they are in a strong position to start a price war. They would reduce their price to a loss making level which they would be able to sustain for a longer period of time than the new entrant.
Brand loyalty: consumers refer to the product as the brand, e.g. Hoover vacuum cleaners. Potential entrants believe that they cannot sufficiently differentiate themselves to generate strong brand loyalty.
Legal barriers: patents, copyrights and trademarks encourage invention in innovative products, as they can cause the firm to be protected from rivals, so it becomes a monopoly. The government can also grant individual firms to produce a certain product by nationalising its industry, e.g. postal service, and banning other entrants.
Natural monopoly: if there are only enough economies of scale to support one firm, if another firm entered, normal profits could not be made, let alone abnormal.
A firm can make abnormal profits in the long run because the effective barriers to entry prevent profits being competed away.
Producing at profit maximising level of output (MC=MR), but productive (MC=AC) and allocative (MC=AR) inefficient.
Monopolists do not always make profits as there may simply be no demand.
Instead of profit maximising (MC=MR) the monopolist revenue maximises (MR=0). This is likely to please consumers as the price is less with greater output.
First degree price discrimination: individuals pay different prices depending on their willingness to pay. Second degree price discrimination: individuals pay according to their consumption (utility companies). Third degree price discrimination: clearly separated markets for different prices charged.
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