Sources of Monopoly Power

Quick revise

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

monopoly

  • MC = marginal cost
  • MR = marginal revenue
  • Qm = junction of marginal quantity
  • Pm = marginal price
  • Pc = competitive price
  • Qc = competitive quantity