---
title: "Competition, Market Power and Barriers to Entry"
description: "Where many sellers offer the same thing, no one of them holds a price above the rest for long, because a rival takes the sale. Market power comes from barriers to entry such as a patent, a network or "
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---

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# Competition, Market Power and Barriers to Entry

Where many sellers offer the same thing, no one of them holds a price above the rest for long, because a rival takes the sale. Market power comes from barriers to entry such as a patent, a network or control of a resource, and a firm that has it can charge more and sell less than competition would allow.

Subject: Civics & Economics · Area: Economics · Ages 15 to 16
Page: https://lightmysky.com/learn/civics-and-economics/competition-market-power-and-barriers-to-entry-mt_7rSbpD7hJ1

## Ready when they can

- Contrast a firm that has to take the market price with one that sets its own, and say what makes the difference
- Name three barriers to entry and give a real example of each
- Explain why a single-price monopoly's price usually sits above the competitive one for the same demand and costs, and what happens to the surplus

## Lesson: Why one baker cannot overcharge but a water firm can

Markets form a spectrum from crowded to lonely. Perfect competition has countless sellers of identical goods, so each takes the price as given. Monopolistic competition has many sellers with slightly different products, like cafes setting their own menu prices. Oligopoly has a few big players watching each other, like phone networks. Monopoly has one seller that sets the price alone. Your place on this spectrum decides your pricing power.

**Example.** A monopoly never appears by accident; something blocks rivals from entering. One firm may own the only quarry for a rare mineral. The law may block entry through a drug patent or a licence. Big can simply be cheaper: one water grid costs less than three rival pipe systems. Brand power and control of a network can do the same job with no law at all. When you see a lone seller, hunt for the barrier.

A competitive firm takes the market price. A profit-maximising, single-price monopolist faces the market demand curve. To sell more along a downward-sloping curve, it must lower the price on all units. It chooses output where marginal revenue equals marginal cost. Compared with competition facing the same demand and production costs, it usually sells less at a higher price. Some consumer surplus becomes producer surplus, while some possible gains from trade are lost.

When one firm dominates, governments sometimes step in as referee, and that response is called antitrust policy. Regulators can block mergers that would kill rivalry, break up abusive giants, or fine tricks like rigging bids. They never punish success itself: a firm that wins by being better is left alone. The aim is to protect rivalry so buyers keep choices and fair prices.

**Recap.** Barriers decide who sets the price, and the lone setter sells less for more.

## Practice

8 questions on this page, each with its working shown.

## Opens up

- [Market Failure: Externalities and Public Goods](https://lightmysky.com/learn/civics-and-economics/market-failure-externalities-and-public-goods-mt_TvBDQJqv1R)