Monopoly power is influenced by the following factors:
- Barriers to entry
- Number of competitors
- Advertising
- Degree of product differentiation
- The larger and more expensive the barriers to entry the greater the monopoly power
- The smaller the number of competitors in the market the greater the monopoly power
- The greater the advertising spend and more recognisable the brand name the greater the monopoly power
- The larger the degree of product differentiation the greater the extent of the monopoly power
Monopoly Model
In the monopoly model the average revenue curve is the same as the demand curve
Where total revenue exceeds total costs the firm is able to make supernormal profits
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- MC = marginal cost
- MR = marginal revenue
- Qm = junction of marginal quantity
- Pm = marginal price
- Pc = competitive price
- Qc = competitive quantity
