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 4 of 32
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Three main sources of barriers to entry into a market 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
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-2- Government Regulation
Monopolies are created when government gives one person or firm the exclusive right to sell or license some good or service.
A monopoly can be created by the political clout of the would-be monopolist.
Autocrats often grant exclusive business licenses to relatives, friends and allies.
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Government can grant a monopoly to a person or firm when it is deemed to be in the public interest.
When a pharmaceutical company discovers a new drug it can apply to the government for a patent.
With a patent the company is given exclusive right to manufacture and sell the drug for 20 years.
Novelists can copyright their books.
The copyright is a government guarantee for a time period no one can sell the work without the author's permission.
The copyright makes the novelist a monopolist in the market for their novel.
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Because patent and copyright laws give one producer a monopoly they allow higher prices than they would be in a competitive market.
When government allows monopoly producers to charge higher prices and earn higher profits the laws encourage some desirable behavior.
Drug companies are encouraged to do the expensive research needed to develop new drugs.
Authors are encouraged to write more and better books.
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Patent and copyright laws have both benefits and costs.
Benefits are increased incentives for creative activity.
Costs are higher prices and a restricted market.
The lack of effective intellectual property protection by government was a main reason for slow technological development until the industrial revolution.
From ScienceNetLinks:
“On this day in 1790, the first American patent was issued to Samuel Hopkins of Philadelphia for ‘the making of Pot ash and Pearl ash by a new Apparatus and Process.’ The patent was good for 14 years.”
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government regulation
seifu kisei
政府規制
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