Why is Monopoly? Natural Monopoly exists if Economies of scale continue up to the full size of the market,so that One big firm can produce at lower cost than several smaller ones But large firms face diseconomies of scale-too many layers between factory floor and boss So natural monopoly is more common in small markets Artificial monopoly.The idea is that a large firm not a natural monopoly Drives all competitors out by selling at a loss,since it has deeper pockets But it is also losing money faster,since it is bigger What about merger to monopoly where there is almost a natural monopoly? Make monopoly profits for a while Until the high price pulls in a new entry ·Government monopoly The Post Office is a monopoly because it is illegal to compete in first class mail Airlines under regulation or licensed professions have entry restricted by law And may,as in the airline case,have price cutting restricted by law Why is Monopoly? • Natural Monopoly exists if • Economies of scale continue up to the full size of the market, so that • One big firm can produce at lower cost than several smaller ones • But large firms face diseconomies of scale—too many layers between factory floor and boss • So natural monopoly is more common in small markets • Artificial monopoly. The idea is that a large firm not a natural monopoly • Drives all competitors out by selling at a loss, since it has deeper pockets • But it is also losing money faster, since it is bigger • What about merger to monopoly where there is almost a natural monopoly? • Make monopoly profits for a while • Until the high price pulls in a new entry • Government monopoly • The Post Office is a monopoly because it is illegal to compete in first class mail • Airlines under regulation or licensed professions have entry restricted by law • And may, as in the airline case, have price cutting restricted by law