Describe the basis of monopoly power.

The basis of monopoly refers to the origin or causes of monopoly powers

Passible causes/origin of monopoly power include

• Legal barriers comprising copyrights, licenses, patents, need for insurance
• Product differentiation
• Red tape or bureaucracy can prevent a new entrant into the market
• Natural monopolies. This occurs due to the ownership of resource such as power to control a natural resource or factor of production such as mineral deposits, fresh water, historical site for tourism
• Person talent. Talented individuals become specialists and therefore become monopolists when they emerge as the best suppliers of service e.g. athletes, musicians, footballer, dancers, designers etc.
• Spatial monopoly. This occurs when one become a monopolist because the prospective competitors are far. Or differences between producers of similar products
• Product differentiation: producers endeavour to give distinctions of their products by way of design, labelling, trade mark, brand names, packaging thereby becoming monopolists in their respective brand and design such phone service providers such as MTN, Airtel.
• Advantages of large scale production which requires huge capital base. This makes firms capable outcompeting others hence emerging as a single supplier of the product.
• Government policy. State or statutory firms e.g. examination bodies, electricity bodies enjoy state protection and hence emerge as single suppliers of their products and services.
• Small market. too small market may prevent entry of other competitors
• Local producers tend to enjoy monopolistic conditions by being protected from foreign competitors (imports) through heavy tariffs by government e.g. Mukwano group of companies in Uganda for soap, oils and laundry products.
• Technical conditions such as standards and/or regulations. In most cases, the prospective competitors fail to meet minimum technical requirement. This leads to technically competent firms to enjoy monopolistic conditions such as civil engineering contractors.
• Entry restrictions. Certain professional organizations tend to maintain difficult entry requirements e.g. accountancy, medical, legal professions keep their service in monopolistic situations
• The amalgamation of firms to form monopolies among themselves reduce the degree of competition e.g. SCOUL.
• A producer emerge as monopolist once his products have acquired high reputation because of high quality e.g. publisher of books.
• Long period of training especially for professionals. In the short run when it is impossible to train and acquire enough qualification it leads to monopolies of the already qualified ones.
• high starting cost make an entity a single seller of goods
• Technological advantages and innovation may sometimes result in monopolistic markets.
• Manipulation: A company wanting to monopolize a market may capture various kinds of deliberate action to exclude competitors or eliminate competition. Such steps include collusion, lobbying governmental administrators, and force
• High Sunk costs; costs that cannot be recovered when a business exist the market such advertising costs and specialist machinery.
• Heavy advertising, price cuts by existing companies can scare a new entrant into the market
• Historic factors.