Key Concepts and Summary
Contents
Barriers to entry prevent or discourage competitors from entering the market. These barriers include: economies of scale that lead to natural monopoly; control of a physical resource; legal restrictions on competition; patent, trademark and copyright protection; and practices to intimidate the competition like predatory pricing. Intellectual property refers to legally guaranteed ownership of an idea, rather than a physical item. The laws that protect intellectual property include patents, copyrights, trademarks, and trade secrets. A natural monopoly arises when economies of scale persist over a large enough range of output that if one firm supplies the entire market, no other firm can enter without facing a cost disadvantage.
Glossary
barriers to entry
the legal, technological, or market forces that may discourage or prevent potential competitors from entering a market
copyright
a form of legal protection to prevent copying, for commercial purposes, original works of authorship, including books and music
deregulation
removing government controls over setting prices and quantities in certain industries
intellectual property
the body of law including patents, trademarks, copyrights, and trade secret law that protect the right of inventors to produce and sell their inventions
legal monopoly
legal prohibitions against competition, such as regulated monopolies and intellectual property protection
monopoly
a situation in which one firm produces all of the output in a market
natural monopoly
economic conditions in the industry, for example, economies of scale or control of a critical resource, that limit effective competition
patent
a government rule that gives the inventor the exclusive legal right to make, use, or sell the invention for a limited time
predatory pricing
when an existing firm uses sharp but temporary price cuts to discourage new competition
trade secrets
methods of production kept secret by the producing firm
trademark
an identifying symbol or name for a particular good and can only be used by the firm that registered that trademark