Characteristics of Monopoly Market Structure - Essay Example

Natural monopoly emerges due to natural advantages like abundant mineral resources, good location, and so on. For instance, Gulf nations have a monopoly in the exploration of crude oil as a result of plenty of natural oil resources (Mankiw & Taylor, 2006).

It also occurs when it is financially impractical or impossible for many companies to engage in a business, for example, when it requires large investments of capital that other companies cannot raise (Tucker, 2011).

Legal or government monopoly occurs when the government passes laws and regulations that reserve a particular trade, service, or good for government agencies (McKenzie & Lee, 2006). For instance, many governments are in charge of running water.

A technological monopoly exists due to patents, trademarks, government statutory regulations, or copyrights. An example of a legal monopoly is the music industry (Mankiw & Taylor, 2006).

A joint monopoly occurs when multiple businesses or firms combine or amalgamate, for example, a combination between competitors like Burger firm and Pizza firm leads to a join monopoly thus reducing competition (Tucker, 2011).

A geographic monopoly occurs when only one firm offers a specific product in an area, for instance, one general store in a small town (Mankiw, 2011).

Monopolies exist to dominate the marketplace by controlling the pricing of a specific product. This is due to a lack of economic competition because such a firm controls a significant volume of the market. It also exists due to high overhead costs which discourage other firms (Tucker, 2011). For instance, it requires a high overhead cost to construct power lines from scratch and acquire the necessary equipment to generate power, making power companies a monopoly.

Barriers to entry:
- Product differentiation- It is hard to enter a market where buyers identify the brand name of a firm with the product. For example, buyers request Kleenex and not paper tissues.
- Government franchise- Governments grants a firm the right to do business thus preventing others from entering such a market (McKenzie & Lee, 2006).
- Intellectual property protection- an extension of patents and copyrights to businesses by the government giving them the right of being the sole provider of that new product thus creating a temporary monopoly (Mankiw & Taylor, 2006).
- Economic barriers such as capital requirements, economies of scale, technological superiority, and cost advantages inhibit other forms from entering the market (Mankiw, 2011).
- Ownership of a key resource- a monopoly is created when a firm has full control of natural resources crucial for the production of a final product (Mankiw & Taylor, 2006).