Monopolistic competition may also be socially inefficient because there are too many or too few firms in the market. The presence of the externality implies that there is too little entry of new firms in the market. a. Business stealing b. Product variety

b. Product variety

Explanation:

In a monopoly market, a single company covers all demand and has full capacity to decide the price and conditions of sale. The origin of this type of market is found in its peculiar barriers to entry:

Exclusive access to a resource. The company that controls an essential production factor to obtain a good or service will be the only one capable of offering it.

The existence of legal rights, which according to have a private or public origin, are classified in patents or administrative concessions.

The nature of the service provided. Sometimes, the characteristics of some services discourage the presence of several companies in the same market since the existence of a single company reduces the costs of supply. These types of monopolies are called natural monopolies.

Cost advantages. If a single company produces at a lower cost than its competitors, it will dominate the market, since its final sale price will be very low in relation to that of other companies.

In practice, monopoly companies produce less than the market demands to keep prices artificially high. The market power exercised by these companies can be abusive, clearly harming consumers.

To avoid and correct situations of abuse of power, countries defend themselves with antitrust laws and courts for the defense of free competition.

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