Strictly speaking, perfect competition has never existed and probably never will. Then why study it?

Discuss the major barriers to entering into an industry. Explain how each barrier can foster either monolopy or oligopoly. which barrier, if any, do you feel give rise to monopoly that is socially justifiable?

While perfect competition might not be a realistic representation of most industries, studying it is still valuable for several reasons. Firstly, it provides a benchmark against which other market structures can be compared, helping economists understand how real-world markets deviate from the theoretical ideal. Secondly, perfect competition serves as a useful theoretical tool for analyzing various economic phenomena and understanding market dynamics. Lastly, studying perfect competition allows policymakers to evaluate the efficiency and fairness of actual market structures.

Moving on to the major barriers to entering an industry, let's discuss a few examples:

1. Economies of scale: This barrier occurs when larger firms have a cost advantage over smaller ones, leading to lower average costs per unit. Economies of scale can foster monopoly or oligopoly by making it financially challenging for new entrants to compete with established firms. The larger firms can achieve greater market share and potentially drive out smaller competitors.

2. Exclusive access to inputs or distribution channels: If established firms have exclusive access to key inputs or distribution channels, it becomes difficult for new entrants to acquire the necessary resources. This can lead to the formation of a monopoly or oligopoly, as existing firms control the crucial elements of production or distribution.

3. Legal and regulatory barriers: Government-imposed regulations, licenses, patents, or copyrights can create barriers to entry. While these barriers can sometimes be justified for reasons like protecting public health or safety, they can also foster monopolistic practices if they excessively limit competition.

It is important to note that while barriers to entry can lead to monopolies or oligopolies, not all monopolies are socially justifiable. However, in situations where a monopoly arises due to natural advantages or innovations that benefit society, it might be justifiable. For instance, if a company invests significant resources in research and development to develop a life-saving drug, granting them a temporary monopoly through patents could be socially justifiable, as it encourages innovation that ultimately benefits the public.

Determining which barriers are socially justifiable requires careful consideration of various factors, including the potential benefits, the duration of monopoly power, and the overall impact on consumers and society as a whole. Assessing the impact on competition and consumer welfare is crucial in making judgments about the social justifiability of a monopoly.