|
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.
|