The Making of Monopolies:
Increasing Returns, Network Externalities, and Vertical Integration

Monopolies arise in markets that have significant barriers to entry. High barriers to entry can come about in a number of ways. Industries with increasing returns to scale reward large, established companies and discourage new competitors. The presence of network externalities leads to "path-dependent" market evolution that causes "lock-in" on a particular technology, shutting out competing technologies even though they may be superior. Vertical integration of markets can lead to increased efficiency that benefits large, vertically-integrated firms. Indeed, businesses with large market share in one market can often leverage their market power to take a substantial share of affiliated "upstream" or "downstream" markets.