State the main sources of monopoly powers
Sources of Monopoly power
- Exclusive ownership and control of resources (factors of production)
- Patent rights e.g. beer brands like Tusker, soft drinks like Coca Cola etc.
- Natural monopoly which results from economies of scale i.e
minimization of average total cost of production. The firm could produce at the least cost possible and supply the market. - Market Franchise i.e. the exclusive right law to supply the product or commodity; most firms that fall in this category arise from government policy e.g. Kenya Railways.
- High (prohibitive) initial size and cost of capital – the initial cost of setting up a firm may be high and most potential firms find it hard to venture.
- Collusion/mergers/cartels/contrived monopolies: purposely to control or dominate the market i.e. large firms may come together in agreement on the quantity of supply or prices to charge thus driving away other potential firms out of business e.g. the oil producing and exporting countries (OPEC).