Question

Which of the types of barriers to entry 1-7, 1) barriers created by government (e.g. professional licenses for electricians, patents, the minimum wage); 2) economies of scale (e.g. Eversource); 3) essential input barriers (e.g. OPEC); 4) brand loyalties (e.g. Kleenex); 5) consumer lock-in (e.g. Microsoft); 6) network externalities (e.g. Verizon); and 7) sunk costs (e.g. Boeing and Airbus). above, is it ethical for a seller to use to maintain its market power, if not to use that market power to raise price?

Answer 1

In this context, the ethical justification of any market barrier to entry essentially centers on the overall welfare impact of the barriers to entry for other firms in any industry or market. Therefore, any entry barrier in any market that is created naturally due to the various inherent market related factors or reasons can be considered to be ethically justified as long as it does not diminish or adversely affect the overall welfare distribution of the market or industry. The overall welfare of any market or industry basically relates to the economic welfare of the various concerned market entities. In this regard, the naturally created market barriers to entry for the new firms in any market or industry such as government licenses, patents, rights of production or manufacturing etc. generally induce the formation of natural monopolies which are necessitated or facilitated by the natural market-related factors or circumstances. For example, a government patent or copyright is primarily intended to safeguard any innovation creation or invention against unauthorized or unethical duplication for commercial purposes. Similarly, often times the market demand may not be adequate or suffieicntto support the existence of multiple firms in the industry or market and in such cases, the over or excess production of the concerned good or service may not be sustainable and reasonable. Therefore, the government officially and legally monopolized or regulates only one or limited number of firms in the market or industry which can sufficiently and cost-effectively cover or cater to the entire market demand. Hence, market barriers created by the government such as licences, regulations, patents, copyrights etc. can be considered as ethical barriers of entry in the context of welfare or public economics. The other forms of barriers to entry such as economies of scale, oligopolistic collisions, network externalities, brna dloyalties etc. are externally induced entry barriers in any market or industry which can result in undesirable economic welfare consequences or outcomes.