Why are natural monopolies a barrier to entry?

Once a natural monopoly has been established, there will be high barriers to entry for other firms because of the large initial cost and because it would be difficult for the entrant to capture a large enough part of the market to achieve the same low costs as the monopolist. Examples of natural monopolies are water and electricity services.

How does a monopolistic competitive industry work?

The monopolistic competitor will produce that level of output and charge the price that is indicated by the firm’s demand curve. If the firms in a monopolistically competitive industry are earning economic profits, the industry will attract entry until profits are driven down to zero in the long run.

How do firms gain monopolistic power?

Firms gain monopolistic power as a result of markets’ barriers to entry, which discourage potential competitors. Monopolies derive their market power from barriers to entry: circumstances that prevent or greatly impede a potential competitor’s ability to compete in the market. There are several different types of barriers to entry.