EC120 Lecture Notes - Lecture 16: Price Discrimination, Sasktel, Manitoba Hydro
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Having a large market share and few significant competitors. A firm that is the sole seller of a product without close substitutes pure monopoly rare. Key difference between monopoly and perfect competition is that a monopoly firm has market power, the ability to influence the market price of the product it sells. Main cause of monopolies is barriers to entry. Natural entry barriers often arise due to economies of scale when the lrac curve is negatively sloped over a large range of output, big firms have a cost advantage over smaller firms. Occurs when the industry"s demand conditions allow no more than one firm to cover its costs while producing at its minimum efficient scale (mes) Usually, this happens because there is some lumpy required input: exists only in large form. Ex: electrical power transmission the lumpy input is the transmission grid (the wires)