Examples: radio frequencies (FCC) and land (some cities license a single firm to manage their public parking lots). Soda machines in schools Used to keep small markets under control.ġ3 Licenses A license – the government grants firms the right to operate a business. Examples?: Single companies get exclusive rights to sell food and goods within national parks. Encourages research and development of new products that benefit society.ġ2 Franchises A franchise – is a contract issued by a local authority that gives a firm a single firm the right to sell its goods within an exclusive market. Types: Patent Franchise Licenseġ1 Patents A patent – gives a company exclusive rights to sell a new good or service for a specific period of time. With the advent of wireless and cable phone services, the natural monopoly disappeared.Ī government monopoly is a monopoly created by the government. They owned the phone poles, lines, hardware, etc. Used to be a natural monopoly – one phone company usually monopolized a region. In return, the government usually sets prices.ĩ Natural Monopolies New technologies can sometimes destroy natural monopolies. The government usually steps in and allows this so that resources are not wasted. If a second firm enters the market, competition will drive down the market price charged to customers and decrease the quantity each firm can sell. In a market with economies of scale, bigger is better – such a market can easily become a natural monopoly.Ĩ Natural Monopolies A natural monopoly is a market that runs most efficiently when one large firm provides all of the output. As production increases, the firm becomes more efficient.
Because a monopolist controls the price of its product, a monopoly produces less and charges higher prices than would a perfectly competitive market.Ĭharge higher prices Less supply than demanded Only one sellerĮconomies of Scale Natural Monopolies Government Monopoliesħ Economies of Scale If a firm’s start up costs are high, and it’s average costs fall for each additional unit it produces, we say it enjoys what economists call: economies of scale. 2 What is a Monopoly? A market dominated by a single sellerģ What is a Monopoly? A monopoly forms when barriers prevent firms from entering a market that has a single supplier.Ĥ What is a Monopoly? A firm has a monopoly when it controls an entire market.
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