Let me begin by explaining as to what a monopoly is and what factors contribute to the formation of such a corporation. Monopolies are industries that are the sole distributors of a specific commodity or service. Thus enabling them to control prices at will for their product/service. They thrive under three main factors: low marginal cost, network externalities, and technical lock-in. Low marginal cost refers to the cost of a company producing its next product or performing its next service (Is the cost of production or replicability high or low?).

Network externalities refer to the effects that a person who owns a particular commodity or engages in a certain service has on other possible consumers. A great exemplification of this in our current time would be someone (likely a colleague) who has purchased Microsoft Office and utilizes Microsoft Word for business. This would push fellow colleagues into doing the same, rather than purchasing a competing software such as Libre, which may be incompatible with your peers. Finally, technical lock-in refers to the attempts corporations engage in to maintain their current user-base. This would mean creating contracts, not supporting other software, placing leave fees and the list goes on and on. Even connecting back to network externalities, users would be utilized as business assets to lock-in more users. Thus the roots of a monopoly sprout into existence.

Another interesting piece of information relating back to low marginal cost is the idea of the marginal rate of substitution or MRS, which shows how much of something it takes for a consumer to exchange products all while maintaining an identical line of utility (usefulness). It is in a monopoly’s best interest to have their product or service be seen as more satisfying to consumers, implying consumers would give up their current goods more readily in exchange for the monopoly’s goods.

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