Question

Monopolies exist because of barriers to entry, obstacles that prevent other firms from entering an industry and competing for market share. For each case below, indicate which barrier to entry applies. a. Coca-Cola's vast market share in the soft drink market: O Control of a resource O Legal barrier O Network externalities Economies of scale O Brand loyalty b. China's control of the market for rare earths (a group of minerals used to produce electronics): O Brand loyalty O Legal barrier O Network externalities O Economies of scale O Control of a resource

Answer 1

a) Coca cola has no control over a key resource, it is not created by the government, it has no economies of scale and network externality. However, it does has a brand loyalty which helps in gaining market power. Select Brand loyalty

b) Control over a key resource, since China has ownership over these resources

c) Legal barrier because it is protected by patent so that government has given a legal protection from competition

d) Economies of scale as per unit cost declines when more people are served

e) Network externalities.