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Discuss the roles of barriers to entry and barriers to exit in sustaining monopolistic behaviour. Can barriers to entry be sustained in the long run?
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Essay Discuss the roles of barriers to entry and barriers to exit in sustaining monopolistic behaviour. Can barriers to entry be sustained in the long run? A monopoly exists if there is only one supplier for an industry's product. This supplier does then hold market power and sets prices and the level of its output in order to reach maximised profit. This profit reaches a supernormal level in both the short and long run. To protect and sustain this profit a monopolist takes advantage of barriers of entry and exit, which are designed to block potential entrants from entering the market profitably. An entry barrier is anything that requires an expenditure by a new entrant into an industry but that imposes no equivalent cost upon an incumbent and has therefore the effect of making the market less contestable. Barriers to entry can be divided into two types: innocent and strategic entry barriers. Innocent...
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