Question

Long-term economic profits are possible in the Monopoly and Oligopoly market structures due to barriers of entry. List two examples of different types of barriers:

Answer 1

MONOPOLY:

There are two types of monopoly, based on the barriers type for entry they exploit. One is natural monopoly, where the barriers to entry are something other than legal prohibition; and second is legal monopoly, where government prohibit competition. The examples of legal monopoly are:

-- Government regulation: For few products, the government erects barriers to entry by limiting or prohibiting competition. Under U.S. law, no organization however the U.S. Postal Service is legally permitted to deliver first-class mail.

--Copyright: According to the U.S. Copyright Office, a copyright is a form of protection given by the United States law for ‘original works of authorship’ including musical, architectural, cartographic, literary, dramatic, choreographic, graphic, pantomimic, pictorial, sculptural, and audiovisual creations. No one is permitted to display, reproduce, or perform a copyrighted work without permission of the author. Copyright protection usually lasts for the life of the author plus 70 years

OLIGOPOLY:

--Patents: Patents are issued for a limited time frame usually twenty years (United States Patent and Trademark Office, 2006). During this period, other companies are not permitted to invent the process or product without permission from the patent holder. Patents permits companies a certain time to recover the heavy costs of researching and developing products and technologies

-- Requirement of large capital: An oligopolistic firm usually require high capital investment to produce the product, such as aircraft, cars, and household appliances. The huge initial investment of capital is usually a major barrier to entry to oligopolistic markets