One of the sources of monopoly power comes from the monopoly's ability to prevent potential rivals from?

Question

entering the market. Consider each of the following scenarios and determine whether the source of monopoly power derives from the fact that a key resource is owned by a single firm, from the government giving a single firm the exclusive right to produce some good, or from the fact that the costs of production make a single producer more efficient than a large number of producers.

Scholastic is the exclusive publisher of the Harry Potter series in the United States because it owns the copyright to the books.

A. Scholastic owns a key resource used to produce Harry Potter books.
B. The government gives a single firm the exclusive right to produce Harry Potter books.
C. It is less expensive for one publisher to print Harry Potter books than for many producers to do so.

Answer 1

B is a monopoly. That is because there is only one company allowed to produce Harry Potter in that scenario- all other firms are legally not allowed to compete.

Answer 2

Answer B is technically flawed. The government does NOT give rights. The government simply allows the author of the Harry Potter books to enter into what would otherwise be prohibited monopolistic contract because it furthers the government's interest to stimulate creative output of authors. The author is NOT bound to make such a contract. In fact she can and has divided up her rights in to several parts, ie publishing in the USA, publishing in UK, and movie productions, all to different parties. All distribution of rights is the sole decision of the author not government. Government merely provides a legal safety net to prevent theft of works without benefit of a contract with the author.