Question

Explain any four factors that lead to the emergence of monopoly.

Answer 1

The principal entrance hurdles that can contribute to the development and maintenance of monopoly power are as follows:

First: a single company may have control over the supply of crucial raw resources. Nickel, sulphur, radium, and diamonds are among well-known examples.

Second: Certain locations provide unique advantages in terms of raw material supply.

Third: Legal limits arising from patent rights and government regulations may be the most important reasons for monopoly.

Fourth: The firm may have exclusive expertise in manufacturing procedures.

Fifth: The market size may be insufficient to support more than one optimum-sized plant. The industry may be a natural monopoly, meaning that there are considerable economies of scale and, as a result, average costs reduce throughout a wide spectrum of output.

Sixth: The incumbent firm may implement a limit-pricing strategy aimed at preventing new entrance. Again, a policy of extensive advertising or ongoing product differentiation may preclude new entrants.