Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 5 Firm Behavior and the Organization of Industry
Chapter 15 of 32 - Monopoly
Section 3 of 32
…
A firm is a monopoly if
· it is the sole seller of a product
· the product does not have close substitutes
The fundamental cause of monopoly is barriers to entry.
A monopoly firm remains the only seller in its market because other firms cannot enter the market and compete with it.
Three main sources of barriers to entry are:
-1- monopoly resources, a single firm owns a key resource required for production
-2- government regulation, the government gives a single firm exclusive right to produce a good or service
-3 - the production process, a single firm can produce a product at a lower cost than can a larger number of producers
…
-1- Monopoly Resources
In this case a single firm owns a key resource.
Consider the market for water in an Old West small town.
If dozens of town residents have working wells this would be a competitive market.
Because of competition, the price of a gallon of water is driven down to the marginal cost of pumping an extra gallon: price = cost, with no economic profit.
…
If there is only one well in town, the owner of the well has a monopoly on water.
The monopolist would have strong market power and could charge a high price.
The price will be above the marginal cost of pumping an extra gallon of water.
…
De Beers, the South African diamond company was founded in 1888 by English businessman Cecil Rhodes.
De Beers has controlled up to 80 percent of the production from the world's diamond mines.
Because its market share is below 100 percent, De Beers is not a full monopoly.
But the company has exerted substantial influence on the price of diamonds.
…
Monopolies rarely arise because of exclusive ownership of a resource.
Economies are large and almost all resources are owned by many people and firms.
Goods are traded internationally and markets are global.
Most resources have substitutes that can be used instead.
… …
business entry barriers
bijinesu sannyū shōheki
ビジネス参入障壁

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