• Control of an important input in production; A firm may control a strategic input or the entire raw materials used in the production of a commodity. Such a firm will easily acquire monopoly by not selling the raw materials to potential competitors.
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  • Ownership of production rights; Where the right to production or ownership of commodity i.e. patent rights, copyrights and royalties belong to one person or firm, then, that creates a monopoly. Similarly if the government gives licence to produce a commodity to one firm, then this will constitute a monopoly.
  • Internal economies of scale; The existence of internal economies of scale that enable a firm to reduce its production costs to the level that other firms cannot will force these other firms out of business leaving the firm as a monopoly.
  • Size of the market; where the market is rather small and can only be supplied profitably by one firm.
  • Additional costs by other firms; A firm may enjoy monopoly position in a particular area if other firms have to incur additional costs such as transport in order to sell in the area. These additional costs may increase the prices of the commodity to the level that it becomes less attractive hence giving the local firm monopoly status.
  • Where a group of firms combine to act as one; Some firms may voluntarily combine/amalgamate or work together for the purpose of controlling the market of their product. Examples are cartels

  • Restrictive practices; A firm may engage in restrictive practices in order to force other firms of business and therefore be left as a monopoly. Such practices may include limit pricing i.e. where a firm sells its products at a very low price to drive away competitors.
  • Financial factors; where the initial capital outlay required is very large, thereby preventing other firms from entering the market.
  • Government Policy ;Where the government establishes a firm and gives it monopoly power to produce and sell ‘cheaply’


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