[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

Wrap-Up
FORMS OF RESTRICTIVE PRACTICES
Exclusive territories
Exclusive dealing
Tie-ins
Resale price maintenance
ENTRY DETERRENCE
Oligopolists use restrictive practices to reduce competition and thereby increase
profits. Another way to reduce competition is to prevent other firms from entering
the market. This is called entry deterrence.
Entry deterrence is intended to limit the number of firms—the fewer the firms,
presumably the weaker the competitive pressure. Natural barriers to entry, such
as the large fixed costs discussed earlier in the chapter, put some limits on competition,
but they are not so impermeable as to block it entirely. Businesses already in
the market often try to supplement the natural barriers by strategic barriers—that
is, acting in ways that make the market unattractive for new firms.
The issue of entry barriers is at the center of the theory of monopoly and oligopoly,
which must explain why new firms don’t enter the market despite the pull of
profits. What are the barriers to their entry? Thus, our discussion of entry deterrence
applies to both monopolies and oligopolies.
Government Policies as Barriers to Entry Many early monopolies were
established by governments. For example, in the seventeenth century, the British
Internet Connection
KEEPING TRACK OF OLIGOPOLIES
The Web site www.oligopolywatch.com provides numerous
articles and news stories about oligopolies. Many of the stories
report on the latest mergers and acquisitions by large corporations,
describing how these often serve to reduce the
number of sellers in a market to just a few different producers.
For example, more than 80 percent of all the music titles produced
in the United States are controlled by just five major
record label conglomerates: Time Warner, EMI Group,
Universal Music Group (UMG), Bertelsmann Music Group
(BMG), and Sony. In 2000, Time Warner and EMI announced
plans to merge, further consolidating the industry, but opposition
from European Union regulators led the two companies
to eventually call off the proposed merger.
These same corporations also own distribution companies
that control more than 80 percent of the wholesale
market.
OLIGOPOLIES ∂ 281