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Monopoly, Oligopoly, Competition, Innovation, and Profits

DQ#1
Among the four principal market structure models, monopoly and oligopoly offer the best opportunities for a firm to earn economic profits in the long run. What are some strategies for the firm which is earning economic profits to legally sustain them over time?

DQ#2
In the purely competitive firm, producing a homogeneous product in a market with many sellers, are there any strategies to operate and earn economic profits in the long run? Are there agricultural firms (often cited as an example of pure competition) that earn economic profits? How can they do this?

DQ#3
Innovation is often associated with the products the organization sells. However, innovation can be much more broadly interpreted in the organization. What other types of innovation could an organization employ to gain a competitive advantage and earn economic profits?

Solution Preview

Here are some suggestions for these questions:

DQ #1: In monopoly and oligopoly industries, barriers to entry allow long-run economic profits. Firms that want to legally sustain their economic profits in such industries must find legal ways to keep new firms from entering the industries.

There's a large body of antitrust law on the legality of various barriers to entry, but you probably don't need to get into that. It's easier to think about some common business practices that maintain barriers to entry without elciting intervention by the authorities. My answer is going to be U.S.-centric. If you're taking this class in a different country, the answers may vary because of differences in laws.

One type of legal barrier is a patent. Patents give firms temporary legal monopolies for goods they have invented. A firm can pursue a strategy ...

Solution Summary

Answers questions about strategies that can lead to long-run profits for monopolies and oligopolies. Discusses the lack of long-run profits in competitive industries, and ways innovation can lead to profits.

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