Causes of Monopoly

Most economists regard monopoly as an exceptional case in a modern economy. In an economy populated by alert profit-seekers, it seems that any profitable monopoly would quickly attract competitors. For a monopoly to be stable, there must be some "barrier to entry." The assumption of free entry into the industry should not apply. Thus, we ask what might create the exception, what might "cause" a monopoly, and what the "barrier to entry" might be.

Following are some of the causes of monopoly

• Patents and other forms of intellectual property

• Control of an input resource

• Government

• Decreasing cost

• Crime

Patents and Other Forms of Intellectual Property

Patent law is designed to increase the incentive to invent new methods of production and new goods. The inventor is granted a temporary monopoly on the use of the invention.  The idea behind this is that the patent makes the invention more profitable, during the term of the patent, and that these profits encourage inventors. So, it increases the rate of technical progress.

For example, the Polaroid Company owns the basic patents on instant cameras. When the Kodak Company produced instant cameras in competition with Polaroid, a court found that this violated Polaroid's patent rights. As a result, Kodak had to cease and desist, and pay a penalty to Polaroid.

Other forms of "intellectual property" include copyrights on books and works of art such as trademarks and trade secrets. Copyrights and trademarks probably do not create monopolies in and of themselves. There may be close substitutes for copyrighted books, and close or even perfect substitutes can be offered for trademarked goods, provided they do not falsify the trademark. However, it is possible that trade secrets might create monopolies. The formula for Coca Cola, for example, is a trade secret. While Coca Cola

probably is not a monopoly, this is a matter of degree-- it is a distinctive product. Whether other colas are close substitutes or not, we leave to your own judgment.