Lux Investing

State how an incumbent monopolist must deter other firms contemplating entry in to the market by investing in?

State how an incumbent monopolist must deter other firms contemplating entry in to the market by investing in access capacity. Explain carefully any requirements with respect to the nature and timing of the investment that may need to be met for this strategy to succeed, and comment on the implications for society if it does.

Public Comments

1. Porter, when looking at his 5 forces said that one of the barriers to entry into a market place was high start up costs. If the monopolist invests enough in their product they will raise the standard expected int he market place by the customers and thus raise the entry costs for competitors and discourage entry
2. A monopolist is different from a perfect competition market. There are more barriers for entry. In order for a monopolist to succeed, their products are differentiated from all other similar products in the market. If it is easy accessible, then they will not lose money to competition, so monopolist will invest in ways that will prevent other firms from entering. Society will pay higher prices for lesser goods if the monopolists continue to monopolize their products. I'm not sure what you mean by access capacity? Do you mean excess?
3. Personally, I doubt the ability of monopolies to survive for very long in the current world market. Assuming there's any significant demand for the product, that is. Companies that hope to remain monopolies can of course invest in additional research to attempt to stay ahead of competition. And yes in excess capacity, which would raise their price, which would encourage consumers to find alternatives. I can remember when it was taken for granted that no car company could outcompete with the Big 3 in the U.S. Toyota and Volkswagen, and now many others have proven that wrong. Even with even larger machinery such as airplanes, if the desire and need is there, a competitor can find a way. Even if it's getting money from their government. Or competitors can give the product away -- that's how Linux is challenging Microsoft. The whole concept of monopoly arouse in a much earlier industrial era, and is now a big deal only to liberals. best, Rick Stooker