The main barrier to entry into a sector is economies of scale
because smaller companies starting big need to be able to match the low manufacturing costs of the companies already in existence. However, there are times when it is not required for all industries to have all large-scale production procedures. Several industries require a tiny fraction of home consumption as the minimum efficient size (Campbell, Brue, & Flynn, 2012).
Natural monopolies give birth to socially defensible monopolies
which result in two or more enterprises supplying the market, raising prices unnecessarily. Having two companies selling similar products or services in the same city would be vital for the government to grant exclusive franchises while regulating the resultant monopoly in ensuring the protection of public interest (Campbell, Brue, & Flynn, 2012).
Another barrier to entry in the legal aspect is patented and is unfair competition and has no social justification
Unfair competition results from individuals who would find ways of outdoing their business colleagues in ways which are not legal.
Question 8
Reimportation of drugs would result in American drug companies losing profits. The companies also argue that reimportation would result in the elimination of incentives for research and development (R&D) thus reducing the quality of the drugs. With the different price sensitivities (willingness to pay) for drugs varying in different countries, the set prices by manufacturers would vary in different markets. When relating the United States and Canada, United States has high drug prices thus reimportation from Canada would limit the funding of R&D (Campbell, Brue, & Flynn, 2012).
With price controls limiting innovation and the economic theory asserting that the efficient covering of the high fixed costs of drug development is by exploiting the buyers, the drug developers are in line with opposing reimportation as they protect their interests on profits and those of the buyers.
Question 9
The operation of De Beers has resulted in the control of world price of diamonds even with the production of fifty percent of all rough-cut diamonds. De Beers invests in the purchase of large portions of diamonds produced by other mines thus marketing over eighty percent of the world's diamonds thus contributing to its monopoly. The discovery of new diamonds in Angola, Canada, and Australia which were mined and would leak to the world market ended De Beers monopoly. There was also the allowance of Russia into the market of selling their diamond directly into the world market (Kanfer, 1995).
De Beer came up with a new strategy of transforming itself to a firm which will sell premium diamonds along with other luxury goods. The sale of additional luxurious products will improve the revenue of De Beer thus improving their economic value other than just profit. In its marketing also, the new image will be portrayed thus increasing the chances of getting more customers.
Question 10
The court found Microsoft guilty of violating section 2 of the Sherman Act with the ruling that it had taken unlawful actions in maintaining its Windows monopoly. The court ruled that it maintained the monopoly by keeping internet explorer in their ranks without any fee. Also under the license from Sun, there was also the development of windows related java software by Microsoft making it incompatible with windows. The district court had an initial remedy of breaking Microsoft into two companies which would not be allowed to enter into a joint venture. In the court of appeal, the ruling was upheld and made changes to the remedy from the lower court. The final remedy was for Microsoft to alter their business practices and thus no need of splitting into two companies (Brinkley, 2000).
References
Brinkley, J. (2000). US v. Microsoft: The Inside Story of the Landmark Case. McGraw-Hill Professional.
Campbell, M., Brue, S., & Flynn, S. (2012). Microeconomics Brief Edition (Mcgraw-Hill Economics Series). McGraw-Hill Education.
Kanfer, S. (1995). The last empire: De Beers, diamonds, and the world. Macmillan.
