11. Sources of monopoly power
A monopoly, unlike a perfectly competitive firm, has some marketpower. Thus, it can raise its price, within limits, withoutquantity demanded falling to zero. The main way monopolies retaintheir market power is through barriers to entry, which preventother companies from entering monopolized markets and competing forcustomers.
Consider the market for tanzanite. The mines for thisblue-purple gemstone, found only in Tanzania, are owned by thelocal government. Given that no one is allowed into the mineswithout government permission, the market structure for tanzanitehighly resembles that of a monopoly.
Which of the following best explains the barriers to entry thatexist in this scenario?
a) Legal barriers
b) Increasing returns to scale
c) Control over an important input
