Explain 4 key sources of monopoly power.
- Legal barriers. Some monopolys are granted their status as monopolys by government for a fixed period. For example, Camelot who operate the National lottery are granted the power to be the sole supplier until 2017. 2.Geographical barriers. A good example for this is a village shop. For those living in the village, because of its position the shop is the only supplier of produce within a close radius, and so it will enjoy some power over prices and its customers as they are unwilling to go further afield. 3. A high Minimum efficient scale/ natural monopoly. This term is used to describe when the lowest output level at which the firm is operating at minimum LRAC is over 50% of the total industry output; so there is only room for one firm to operate in the industry efficiently. For example, railways- if more than on firm laid down rail-tracks to compete the result would be a huge misallocation of resources. 4.) High sunk costs. These are costs which cannot be recouped upon leaving the industry. If an industry requires high levels of investment to enter, this will deter other firms.
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