Monopolies that make super normal profits aren’t in the public

1147 Words 5 Pages
Monopolies that make super normal profits aren’t in the public interest because they could charge a lower price than they do.

Introduction: Monopoly is an emotive word, and the immediate reaction is that it should be replaced with competition. In this investigation we are going to look at what is a monopoly, what are barriers to entry and what types of barriers there are, what are normal and supernormal profits and to they bear any benefits to the public.

What is a monopoly?

Monopoly is a market situation in which there is a single seller of a product and there are no close substitutes of this product in the market. The firm has all the market to its self and the customer depends on the firm for the supply of the product.
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Natural Monopolies

a natural monopoly is having vast scale of economies, firms that arise from the economy of scale do not have any fear of smaller competitors entering the industry.

Government licensing

Government licensing constitute legal barriers to entry, most legal barriers limit the number of competitors, but do not result in a single pure monopoly firm. For example many states require hospitals and nursing homes to file a Certificate of Need to obtain permission to expand. Such laws are designed to prevent unnecessary duplication of services, but they also result in reduction of the number of hospitals. Many state governments require licenses for alcohol shops, barbershops, funeral parlours and other establishments. Why do legal barriers to entry exist in these industries? Ostensibly, these barriers exist to protect the public – you wouldn’t want you heir cut by just anyone but a trained professional. Barriers to entry often serve businesses more than the public. Requiring the licences reduce the number of competitors and increase the monopoly power of firms within the industry. Government authorisation is needed to engage in business. To obtain a licence, various requirements must be met, and the number of licences is often restricted.

Patents

Patents are a kind of government licensing. In the US, patents grant the owner exclusive production rights - pure monopoly

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