We know from microeconomics that a former monopolist still has market power if it faces just a few competitors

Marketing Jan 11, 2021

We know from microeconomics that a former monopolist still has market power if it faces just a few competitors. Yet some claim that allowing just one Foreign monopolist into a Home market to face one Home monopolist creates a Home market engaged in perfect competition, rather than an oligopoly. Do you agree or disagree with this concept? Why?

Expert Solution

Allowing just one foreign monopolist into a Home market to face one Home monopolist will not create a situation like perfect competition. It is because, for perfect competition, there should be free entry and exit of the firms; hence, allowing only one foreign monopolist would not make the market perfect competition. Also, even after allowing a few competitors, former monopolist still has market power because of hold on a larger share of resource available in the economy.

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