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Monopoly Sources
There are five major reasons or sources of monopoly. It is because of these reasons that monopolist enjoys a high degree of monopoly power. These sources related to the factors which prevent the entry of new firms into an industry. Thus these factors save as barriers to the entry of new firms is an essential condition for the existence of monopoly. We explain below some of the important factors that save as barriers to their entry of new firms and therefore constitute sources of monopoly.
1. Patent or copyright: rest important source of monopoly is that a firm may posse’s appetent or copyright which prevents other to produce the same product or use a particular production process generally when the firm introduces new products they get patent right from the governments so that others cannot produce them. These patent rights are granted for a certain period of time. For example when copying machine was invented, it inventory Xerox company had monopoly in its product based on a patent granted to it by the government so that it retains monopoly power over its production. Patents and copyright constitute strong barrier to the entry of potential competitors.
2. Control over an essential raw-material: another source of monopoly is a control by a particular firm over inessential raw material ro input used in the production of a commodity. For example before worlds war II, aluminimum company of America exercised exclusive control over almost every source of bauxite which is essential input for the manufacture of aluminimum, had the monopoly power over the production of aluminimum in the USA. Likewise OPEC. (Organisaion of petroleum exporting countries) exercises monopoly pore in the world over the supply of petroleum countries.
3. Grant of franchise by the government: another important reason for monopoly is the grant of franchise by the government to a firm. A firm is granted the exclusive legal right to produce a given the exclusive right to the government owned company DVB to provide or distribute electricity in Delhi likewise mahanager telephone Nigam Ltd. (MTNL) enjoys exclusive legal rights to provide landline telephone service in Delhi. It may be noted that when a company is given a franchise to produce a particular product or provide a particular service by the government, the government keep with itself height to regulate it spruce and quality.
4. Economies of scale: natural monopoly another important source of monopoly is significant economies of scale over a wide range of initial output. When significant economies fo scale are present average cost of production goes on falling over wide range of output and reaches a minimum at an output rate that is large enough for a single firm to meet the entire market demand at a price that is pronto able. in such a situation if more than one firm operate to produce the product each firm most be producing the product at a higher than minimum cost per unit. In such a situation each firm is inclined to cut price to increase its output and reduce average cost of the product. This leads to price warfare and one who survives in the economic warfare emerges as monopolist. When there are significant economies of scale and as a result aver cot decreases over a wide range of output natural monopoly is said to exist natural monopolies are regulated bty eh government so that they should not charge high prices and exploit the consumers.
5. Advertising and brand loyalties of the established firm: another important reason that prevents the entry of new competitors in te industry is strong loyalties to the brands of the stability of the consumers for Britannia bread makes it difficult for the potential competitors to enter further for a long time in the USA the firm producing Coca Cola was a well established firm to produce a famous cold drink and no one dared to enter this field till Pepsi Cols another giant came and broke its monopoly. Huge advertising campaigns and customer service programmes are of then undertaken to enhance the market power of the producer an prevent the entry of potential competitors besides, five well established firm are expecting new potential competitors they cut prices of their products so that potential competitors find it unprofitable to enter the industry.
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1. Patent or copyright: rest important source of monopoly is that a firm may posse’s appetent or copyright which prevents other to produce the same product or use a particular production process generally when the firm introduces new products they get patent right from the governments so that others cannot produce them. These patent rights are granted for a certain period of time. For example when copying machine was invented, it inventory Xerox company had monopoly in its product based on a patent granted to it by the government so that it retains monopoly power over its production. Patents and copyright constitute strong barrier to the entry of potential competitors.
2. Control over an essential raw-material: another source of monopoly is a control by a particular firm over inessential raw material ro input used in the production of a commodity. For example before worlds war II, aluminimum company of America exercised exclusive control over almost every source of bauxite which is essential input for the manufacture of aluminimum, had the monopoly power over the production of aluminimum in the USA. Likewise OPEC. (Organisaion of petroleum exporting countries) exercises monopoly pore in the world over the supply of petroleum countries.
3. Grant of franchise by the government: another important reason for monopoly is the grant of franchise by the government to a firm. A firm is granted the exclusive legal right to produce a given the exclusive right to the government owned company DVB to provide or distribute electricity in Delhi likewise mahanager telephone Nigam Ltd. (MTNL) enjoys exclusive legal rights to provide landline telephone service in Delhi. It may be noted that when a company is given a franchise to produce a particular product or provide a particular service by the government, the government keep with itself height to regulate it spruce and quality.
4. Economies of scale: natural monopoly another important source of monopoly is significant economies of scale over a wide range of initial output. When significant economies fo scale are present average cost of production goes on falling over wide range of output and reaches a minimum at an output rate that is large enough for a single firm to meet the entire market demand at a price that is pronto able. in such a situation if more than one firm operate to produce the product each firm most be producing the product at a higher than minimum cost per unit. In such a situation each firm is inclined to cut price to increase its output and reduce average cost of the product. This leads to price warfare and one who survives in the economic warfare emerges as monopolist. When there are significant economies of scale and as a result aver cot decreases over a wide range of output natural monopoly is said to exist natural monopolies are regulated bty eh government so that they should not charge high prices and exploit the consumers.
5. Advertising and brand loyalties of the established firm: another important reason that prevents the entry of new competitors in te industry is strong loyalties to the brands of the stability of the consumers for Britannia bread makes it difficult for the potential competitors to enter further for a long time in the USA the firm producing Coca Cola was a well established firm to produce a famous cold drink and no one dared to enter this field till Pepsi Cols another giant came and broke its monopoly. Huge advertising campaigns and customer service programmes are of then undertaken to enhance the market power of the producer an prevent the entry of potential competitors besides, five well established firm are expecting new potential competitors they cut prices of their products so that potential competitors find it unprofitable to enter the industry.
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