Lesson: How Monopolies Form: Barriers to Entry
Introduction
Introduction
Because of the lack of competition, monopolies tend to earn significant economic profits. These profits should attract vigorous competition as we described in Perfect Competition, and yet, because of one particular characteristic of monopoly, they do
not. Barriers to entry are the legal, technological, or market forces that discourage or prevent potential competitors from entering a market. Barriers to entry can range from the simple and easily surmountable, such as the cost of renting retail
space, to the extremely restrictive. For example, there are a finite number of radio frequencies available for broadcasting. Once an entrepreneur or firm has purchased the rights to all of them, no new competitors can enter the market.
| Essential Question |
As you complete this lesson, consider the essential question. By the end of the lesson, you should be able to provide a detailed explanation to this question.
How do monopolies emerge?
| Objectives |
By the end of this lesson, you will be able to:
- distinguish between a natural monopoly and a legal monopoly
- explain how economies of scale and the control of natural resources led to the necessary formation of legal monopolies
- analyze the importance of trademarks and patents in promoting innovation
- identify examples of predatory pricing
| Key Terms |
As you complete this lesson, look for the key terms. Add each term to your Vocabulary Chart. You may use context clues or the Glossary to help you define each term. Then, write or draw an example to help you remember what each term means.
- barriers to entry
- monopoly
- natural monopoly
- legal monopoly