BARRIERS THAT CAN PREVENT THE EMERGENCE OF COMPETITIVE FIRMS

BARRIERS THAT CAN PREVENT THE EMERGENCE OF COMPETITIVE FIRMS

 High entry costs: Existing monopolies producing large volume of output may be benefiting from economies of scale.

This may mean that new competitors, probably producing low volume of output, would be faced with higher per unit cost and would not be able to compete effectively in the market.

  • Possession of rare skill or knowledge: The possession of special or rare skill or knowledge by a monopolist will make him to excel, thereby making it difficult for other competitors to come into the business.

  •  Legal monopolies: Certain monopolies might be created by law which will make it difficult for other competitors to come into the business, e.g. public utilities like post office and PHCN.

  • Patent and copyrights on an invention or innovation: A patent confers sole production rights for a given period of time on those who have invested in research and development of the product to enable them earns a return on investment.

  • A copyright restricts production of printed or recorded materials in a similar way.
  • Ownership of natural resources: owners of some natural resources prevent others from coming into business, e.g. OPEC countries and oil.
  •  Unfair competition: Rivals may be eliminated and the entry of n competitors blocked by aggressive tactics, e.g. price wars.

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