Barriers to Entry

Topics: Economics, Perfect competition, Monopoly Pages: 3 (1035 words) Published: March 17, 2012
Explain how barriers to entry may affect market structure

In some market it is easier to enter than in others due to the barriers to enter. Those barriers determine how many producers there will be in a market and therefore its structure. If there are lot of barriers to entry there will be market structure such as monopoly or oligopoly; if there are no barriers to entry, or just few of them, there will be market structure such as perfect competition or monopolistic competition. When the barriers to entry are lots and strong, another producer will not be able to enter into the market because the costs and difficulties are too high, we will find a monopoly. In this type of market structure there are different kind of barriers to entry. Firstly, there are legal barriers where the government can create a monopoly because of its law system. For example, in UK only pharmacy can give prescription for drugs. Secondly, there are resource barriers where a monopolistic firm is able to buy all the resource available and therefore others firms won’t have any possibility to set up. For example, in Italy there is only one electric company that bought all the resources available and Italian consumers have just one supplier of electricity. Thirdly, a monopoly can practise an unfair competition so if another firm tries to enter into the market the monopolistic firm will lower its price and therefore the prices to enter will be to high for the entrant. For example, frequently in the past Microsoft has been accuse to practise anti-competitive strategies to ensure its monopoly of its operative system. Another reason for which there is a monopoly is that a firm can produce a desired output at a lower social cost than two or more firms. This particular type of monopoly is said to be natural. A common example of a natural monopoly is the rail industry where the consumers prefer to have just an industry so the environment is not damage.

In the monopoly there is only one...
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