Economics – Reply to Peer’s Discussion Question W4Q2

I have to reply to 2 peer’s post. Please find the attachment of both peers reply. Please compose reply for both posts in the attached documents.Each response should be minimum of 200 words excluding reference. RequirementForums Guidelines CriteriaRequirementsQuality Guidelines (50%):Responses are original in content with a minimum of one external reference.All posts demonstrated analysis of the topic.Responses to classmates are significant and advanced the discussion.Participation Guidelines (30%):Responses to classmates are at least 200 words.Clarity, Organization & Professionalism Guidelines (20%):Responses were organized and logical.No spelling or grammatical errors.References were used and cited properly.Appropriate language, respect and consideration toward peers/instructor.

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Peer Response â?? 1
The text identifies four main barriers to entry. They are economies of scale, Legal barriers such
as patents and licenses, ownership or control of essential resources and pricing and strategic
methods (Brue, Flynn, Grant & McConnell, 2014). Economies of scale as a barrier to entry can
be described as the cost required to enter into and function in a market. It takes too much
financial capital to operate in the industry. I remember seeing a movie a while back about a
man who wanted to start his own car company. He had a radical idea that used less expensive
fuel and the cost to get his idea off the ground where too much to compete with the
established car companies. A recent example is Tesla, they are making and selling cars but the
firm as yet to make a profit and has huge losses. At some point, they will need to make a
decision on whether they should remain in business. This barrier fosters an oligopoly with only
a few sellers in a market.
Legal barriers in the form of patents and licenses create barriers by providing a period of
exclusivity to produce and sell goods. This is most common today in the pharmaceutical
industry, where the cost of developing new drugs is high and the patent allows the firm to sell
the products with no competition for a period of 20 years. Licenses are used to limit the
number of sellers in a particular market. Patents and licenses foster monopolies for some
period of time, however other time is changes to an oligopoly. Ownership or control of
essential resources is another barrier to entry into a market. A company or person owning
mineral rights or sports teams prevent others from access to the market. An example would be
the ownership of oil fields, that prevent others from access to the oil. Firms can also use pricing
to block entry. Companies and reduce prices to prevent others from profiting if they try to
enter the market. Other tactics companies use include limiting access to distributors for similar
products or limiting foreign competition. Ownership of essential resources and pricing
strategies foster monopolies.
I believe that overall monopolies are not in societies best interest however, socially justifiable
barriers are warranted in the case of patents to provide some protection for the inventor of a
product or technology. There should be some control however, to ensure that firms do not
overcharge at the expense of the consumer, like some drug companies do for some of their
Peer Response â?? 2
Economies of scale are a barrier to entry because of the need for new firms to start big to
achieve the low production costs of those already in the industry. However, not all industries
need techniques of production that require large scale. In many industries the minimum
efficient scale is only a small percentage of domestic consumption. Recall on MES.Natural
monopolies give rise to monopoly that is socially justifiable.
The economies of scale are sometimes such that having two or more firms serving the market
would increase costs unreasonably. Two telephone companies, or gas companies, or water
companies, or electricity companies in the same city would be highly inconvenient and costly if
transmission requires wires and pipes. In such instances, it makes sense for government to
grant exclusive franchises and then regulate the resulting monopoly to ensure the public
interest is protected.
The major barrier to entry into an industry is economies of scale, this is a major barrier because
of cost for new companies to start and succeed quickly to get to the level of production costs as
their competitors. This would be a monopoly because two or more companies are in the same
competition market and so this would increase costs.
Another barrier for entry would be legal barriers such as patents and licenses. It is important to
make sure that companies copyright right their inventions right away, so competitors cannot
copy their invention, this would be monopoly because of the competitors and the increase in
costs. A barrier to entry would be ownership of essential raw materials, this is a monopoly
because of the supply of the materials would affect the cost of supplies.
Patents and licenses are legal barriers to entry that also, to some extent, are justifiable. If
inventions were not protected at all from immediate copying by those who bore none of the
costs, the urge to invent and innovate would be lessened and the costly secrecy that is enforced
already would have to be much greater and more costly. However, this does not mean that
abuses do not exist in the present system and a case can be made for reducing the present
seventeen years for which patents are granted.
Ownership of essential raw materials is another barrier to entry. It has little social justification
except to the extent that the hope of gaining a monopoly in the supply of an essential raw
material leads to more prospecting.
The Last Word on De Beers is an example. Unfair competition is the last of the barriers and has
no social justification at all, which is why price-cutting to bankrupt a rival is illegal. The problem
here, though, is to prove that cutthroat competition truly is what it appears to be.

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