Asked by Coral Petersen on May 16, 2024
Verified
A manufacturer of digital music players uses a proprietary file format that is not used by the other firms in the market. This action by the firm may be an example of using a ________ to reduce the number of firms in the market and to maintain a relatively inelastic demand for its products.
A) natural monopoly
B) positive externality
C) subsidy
D) barrier to entry
Barrier to Entry
Factors that make it difficult for new firms to enter a market, which can include high startup costs, access to technology, and strict regulations.
Inelastic Demand
A situation where the demand for a product does not change significantly in response to price changes.
- Learn about the concept of monopoly and the prerequisites for a firm to establish monopoly authority.
- Assess the consequences of market penetration and rivalry on the control wielded by monopolies and their strategies for setting prices.
Verified Answer
PL
Patricia LlanesMay 22, 2024
Final Answer :
D
Explanation :
The proprietary file format creates a barrier to entry for other firms who would need to invest in creating a compatible format in order to enter the market. This reduces the number of firms in the market, giving the firm more market power and enabling it to maintain a relatively inelastic demand for its products.
Learning Objectives
- Learn about the concept of monopoly and the prerequisites for a firm to establish monopoly authority.
- Assess the consequences of market penetration and rivalry on the control wielded by monopolies and their strategies for setting prices.