What is meant by market power? What are the ways in which a monopoly gains market power?
What will be an ideal response?
Market power relates to the ability of sellers to affect prices. For the monopolist, market power arises because of barriers to entry. Barriers to entry are obstacles that prevent potential competitors from entering the market. There are two types of market power that arise from barriers to entry: legal market power and natural market power. Legal market power occurs when a firm obtains market power through barriers to entry created not by the firm itself, but by the government. For example, firms gain market power through patents and copyrights. Natural market power arises when the monopolist owns or controls a key resource necessary for production or there are economies of scale in production over the relevant range of output.
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a. True b. False
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