Question

Discuss the major barriers to entry into an industry. Explain how each barrier can foster either monopoly or oligopoly. Which barriers, if any, do you feel give rise to monopoly that is socially justifiable

Answer 1

Following are major barriers to entry into an industry:

• Economies of scale: Increase in level of production reduces the cost of production significantly. So, new firm finds it difficult to enter the market.
• Large scale investment is required. So firms can not enter the market easily due to such barriers.
• Some firms have access to natural resources. so it poses barriers to entry of new firm.
• Few firms also go for limit pricing or predatory pricing to limit competition in market.

Patents and copy rights created barriers are socially justified. Such intellectual property rights, motivate investment in research and development. So such entry barriers can be justified.