Discuss SIX (6) barriers that can prevent new firms from successfully entering and competing in a market dominated by a
monopoly.(40 marks)

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BlackTom AI · Accepted Answer

Discussing barriers to entry into a monopoly-dominated market requires unpacking the mechanisms that make new competition costly or unprofitable. 
Barrier 1: Economies of scale can create a cost advantage for the incumbent. In many networks or capital-intensive sectors, the average cost per unit falls as output rises, so a monopolist can price lower than a new entrant who cannot immediately reach those high output levels. This makes it hard for the entrant to compete on price without risking losses while chasing scale. 
Barrier 2: Legal barriers such as patents, licenses, or exclusive rights can legally prevent entry. When the state or a firm holds protective intellectual property or regulatory authorization, potential competitors may be barred from producing certain goods or delivering certain services, regardless of demand. A classic illustration is patented pharmaceuticals, where generics cannot legally enter until the patent expires. 
Barrier 3: Control over essential resources or infrastructure can shut out rivals. If the monopoly controls critical inputs or distribution networks, a new entrant may be unable to obtain what is needed to produce or deliver a product. Historical cases like De Beers’ control of key diamond sources demonstrate how access to an essential resource can deter entrants. 
Barrier 4: High capital requirements raise the hurdle for starting up. Sectors like airlines, telecommunications, or heavy manufacturing require sizable upfront investment in equipment, facilities, and regulatory compliance. For a new firm, arranging this level of finance and achieving an acceptable risk-adjusted return can be prohibitive, deterring entry. 
Barrier 5: Strategic barriers involve incumbent actions designed to deter entry or erode any nascent competition. Predatory pricing, exclusive contracts, rebates, or aggressive advertising can squeeze potential entrants, making it unprofitable to enter or stay in the market. For instance, a telecom monopoly might offer steep discounts to lock in customers and raise the cost of switching for rivals. 
Barrier 6: Brand loyalty and customer inertia create a psychological and behavioral obstacle. Even with comparable products, consumers may prefer the familiar monopoly brand due to trust, perceived reliability, or compatibility concerns, reducing the incentive for customers to switch and for a new entrant to gain market share. Windows’ dominance in PCs is a familiar example of how entrenched ecosystems impede new entrants. 
In summary, these six barriers—economies of scale, legal restrictions, resource control, capital requirements, strategic actions, and brand loyalty—provide a cohesive framework for understanding why new firms struggle to compete in markets already dominated by a monopoly.

Business Economics (052025-LSS)

Discuss SIX (6) barriers that can prevent new firms from successfully entering and competing in a market dominated by a monopoly.(40 marks)

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