Managerial Economics and Strategy, 2/e

9.4 Causes of Monopoly

Why are some markets monopolized? The two most important reasons are cost ­considerations and government policy.15

15In later chapters, we discuss other means by which monopolies are created. One method is the merger of several firms into a single firm. This method creates a monopoly if new firms fail to enter the market. A second method is for a monopoly to use strategies that discourage other firms from entering the market. A third possibility is that firms coordinate their activities and set their prices as a monopoly would. Firms that act collectively in this way are called a cartel rather than a monopoly.

Cost-Based Monopoly

Certain cost structures may facilitate the creation of a monopoly. One possibility is that a ...