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Analyse The Barriers To Entry And Exit In The UK

970 Words4 Pages

1. Explain what is meant by a ‘monopoly’, using bus services as an example. (4 marks) A monopoly is defined as a single seller of a product, in the UK a firm is said to have monopoly power if it has more than 25% of the market share. For example the extract states that the “majority of local bus routes are serviced by just one company” therefore it is a monopoly as only one firm exists and it has over 25% of the market, the extract also states that “most routes only have one bus provider” thus this provider is a monopoly. Also most routes only have one bus provider due to only a limited number being a viable option as there can be only a limited amount of providers therefore it is a natural monopoly. 2. Analyse the barriers to entry and exit in the local passenger market. (12 marks) Barriers to entry or exit is when there are obstacles that prevent new competitors from easily entering or exiting an industry/area of business. The bus market has low barriers to entry due to the ease of offering an alternative service, this is due to start-up costs …show more content…

Bus companies are likely to earn supernormal profits due to majority of the bus routes in the UK being serviced by just one company. Therefore firms wanting to get in the market are unable to due to high barriers to entry and exit, high sunk costs and imperfect knowledge. This makes the market highly uncompetitive as the bus market is able to protect itself in the long run and gain market share. However supernormal profits depend on demand and the revenue earned by the bus market. The extract states that the bus fares don’t cover operating costs, this suggests that demand is low or the fare price has been significantly reduced due to student discounts or due to old persons bus passes which erode into the revenue, and this means that bus companies are unlikely to earn supernormal

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