On pp. 29–31 of this magazine I advocated the importance of small firms. There are equally compelling reasons for examining industries that are dominated by a monopoly, and understanding the reasons for this dominance and the challenges and opportunities that can arise.
The first key factor for having only one major firm is the ability of that organisation to exploit economies of scale and produce at a much lower unit cost than would exist with a larger number of small firms competing against each other. A second factor is the idea of a firm having a natural monopoly, where it makes sense for the industry to be supported by only one large firm. Here, the level of fixed costs is so significant that it makes it prohibitive for new firms to enter the marketplace.
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