Question

Give an example of a monopolistic market/firm or a dominant firm. Clarify which type (monopoly or dominant firm) your example fits and why. Identify and briefly discuss the barriers to entry for the market in your example. Be specific.

Answer 1

Let me begin my answer in the following way,

Monopolistic market can be considered as a combination of perfect market and monopoly and shares the characteristics of both the market situations. In monopolistic market, there are large numbers of buyers and sellers, but not as large as perfect market dealing with differentiated products . Strictly speaking, there are no barriers in entry and exit under this market. It is a situation of imperfect competition.

However, there are barriers in entry and exit in case of monopoly market structure where there is only one seller who is the price maker. Since he the only dominant force in the market, he can fix and sell products at whatever price he wants and there are almost no close substitutes for the products. And if there is, it may be costly or it may not be used easily.

For example the biggest monopoly in the world itself especially in India is Railway service. The government has the complete monopoly over the railway industry. As there is no competition, the railway sector has the complete right to fix the price of tickets, number of seats and so on without any fear.

Barriers of Entry in Railway Industry

The entry of participants is completely blocked in railway sector. The biggest barrier to entry in the railway is the sunk cost of infrastructure. It includes cost of training the new staffs, cost of promotion and maintenance of seat reservation system. Moreover, to run efficiently, it requires large amount of capital to complete the day to day requirements.