Competitive Strategy in Monopoly Markets

Above-normal returns tend to be fleeting in perfectly competitive industries but can be durable for efficient firms that benefit from meaningful monopoly advantages. As in any perfectly competitive industry, above-normal profit rates can be observed if monopoly firms temporarily benefit from some unanticipated increase in demand or decrease in costs. Similarly, monopolists can benefit from temporary affluence due to unexpected changes in industry demand or cost conditions or uniquely productive inputs. What is unique about monopoly is the potential for long-lasting above-normal rates of return.

In this age of instant global communication and rapid technical advance, no monopoly is permanently secure from the threat of current or potential competitors. Product characteristics, the local or regional limits of the market, the time necessary for reactions by established or new competitors, the pace of innovation, unanticipated changes in government regulation and tax policy, and a host of additional considerations all play an important role in defining the scope and durability of monopoly power. When attempting to describe monopoly advantages, it is always helpful to consider the number and size of potential competitors, degree of product differentiation, level of information available in the marketplace, and conditions of entry.

Table 10.4 summarizes major characteristics typical of perfectly competitive and monopolistic markets. To develop an effective competitive strategy, it is necessary to assess the degree to which the characteristics of an individual market embody elements of each. Although the probability of successful entry is greater in perfectly competitive markets, monopoly markets lure new and established competitors with the promise of long-lasting, above-normal returns. Because the decision to enter any new market or line of business involves a careful balancing

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