Barriers to Entry in a Monopolistic Market Structure - Research Paper Example

The primary method of discouraging businesses to operate in a monopolistic market is to create deliberate entry barriers in the form of trade barriers. Market regulators may decide to discourage new business entry by placing restrictions on licenses, tariffs, and currency movement, and by providing existing businesses with subsidies. Typically, trade barriers are taken into consideration in terms of international trade only (Hans, Dahringer, & Leihs, 1999).

Governments are known to create entry restrictions through licensing restrictions whereby new businesses are not issued licenses to operate inside the market. For example, the defense industry in the United States is highly protected by the government, as foreign operatives are not issued licenses to operate in the same market. In addition to these licensing restrictions, governments may choose to restrict import and export licenses to keep a monopolistic market intact. Legal entry barriers are analogous to trade barriers.

Governments employ various forms of laws to ensure that new businesses are unable to enter the target market. . for example, several Islamic countries discourage the production of alcoholic products in their borders by complicating the launch of new alcohol manufacturing businesses (Blinder, Baumol, & Gale, 2001). In addition to legal and trade barriers, another entry barrier employs technological and copyright methods. The presence of copyrights and trademarks related to certain products means that new businesses cannot enter business segments protected in this fashion.

Typically, copyrights and trademarks are employed to protect businesses that are unique in terms of content such as music, books, films, etc. However, copyrights and trademarks are also employed to protect other businesses where new entrants could emerge such as pharmaceuticals. If a pharmaceutical company owns a certain patent for medicine, then only that business can produce the subject medicine. Other businesses may also acquire the formula but cannot produce it due to copyright and patent restrictions.

Monopolies emerge in markets where resources are scarce and controlled by one or a select few businesses. Perhaps, the most telling example of such monopolies is the production of oil and gas in the Central Asian region. Oil and gas resources are scarce around the world and businesses are trying to shift to newer sources of oil and gas present in Central Asia. However, these resources are controlled by the local governments and existing businesses that do not allow new businesses to enter the market.

The control of these scarce resources by a few select businesses means that the emerging market structure is a monopoly (Hirschey, 2000). Similarly, large sunk costs discourage new businesses from entering the market.