sources of monopoly power.
monopoly is a market structure characterised by a single firm controlling the whole supply of goods that has no close substitutes and there are high level of barriers to entry and exit in the industry. market power represents the extent of ability for a firm to control prices or output of a product in a market to achieve high profits. sources of monopoly power stems from barriers to entry. BTE are obstacles in the path of a firm that makes it difficult to enter a market. the existence of BTE enable firms to have market power and hence make supernormal profits in the LR because the supply of good, with no close substitutes, is prohibited (what does this sentence mean?) BTE exist because of economic and institutional reasons.

economic BTE - at least 2
1. large EOS-cost adv.
complex technology requiring R&D and substantial initial capital investment means that only large firs can achieve low AC. e.g. airbus and boeing. new firms find it difficutl to compete because their low level of production does not allow them to enjoy cost savings. while the incumbent already experiencing substantial internal EOS may charge a price below cost of new entrants and drive them out of business. this will allow them to establish monopoly power.

2. natural monopoly
a natural monopoly occurs when EOS are so large such that only one firm can suppoly the total market demand at a much lower AC than two or more firms. it occurs in industries where the production of goods and services e.g. electricity and water) requires huge initial capital outlay in infrastructural investment. e.g. Public Utilies Board of Singapore (PUB) needed to lay huge expensive pipes all over Singapore to deliver water to households. hence, MES is large. the natural monopoly may produce at a large output at a lower unit cost than if two or more firms were to produce. this means that production has to be on a very large scale for the firm to be operating with a lower AC. thus, the govt would likely take over production or give one licence for a firm to operate.

3. exclusive control and ownership of resources
monopoly power is especially strong if the factor resource used in the production process is crucial. if rival firms cannot have access to this exclusive raw material owned by the monopolist then they cannot compete with the monopolist. e.g. de beers, south africa, supplies 46% of the world diamonds.

institutional BTE - at least 1
1. patents
legal authorities give exclusive right to produce a good or specific production process for a period of time. aim to promote invention and development of new technologies. other firms are not able to produce the same product or use the same production process, thus protecting the firm who was awarded the patent from new entrants.patents are filed with IPOS - intellectual property office of singapore, a statutory board with ministry of law. patents serve to prevent competition by the exclusion of other firms in the production of the product for a number of years. e.g. the mp3 interface was patented by Creative Technology.

2. copyrights
copyrights are granted to composers and writers giving legal rights to control production of works over  period of time. aim is to encourage and reward creativity. payment would hae to be made in form of royalties to the creators if producers want to use the works. e.g. walt disney characters. thus preventing others from entering the market.

3. licenses
govt grants license to operate a service e.g. radio and TV broadcasting or sell particular type of good.e.g. pay-tv licenece was given to singtel and starhub in singapore. licences prevents entry of new firms cutting down wastage of resources due to duplication and encourga large scale investment.

in real life, BTE may be eroded over time, i.e. creative destruction. for example, the invention fof digital photography eroded polaroid's monopoly power could remove economic BTE. changes in governmental policies e.g. liberalisation (ohmygod reminds me of my speech) of Singapore telecommunication market could remove institutional BTE. with increasing globalisation, the entry of foreign firms into markets would erode an incumbent monopolist's market power over time.