Answer to Question #237485 in Microeconomics for Yasuri

Question

Suppose that you are managing a small firm and thinking about entering the market of a monopolist. The monopolist is currently charging a high price, and you have calculated that you can make a nice profit charging 10% less than the monopolist. Before you go ahead and challenge the monopolist, what possibility should you consider for how the monopolist might react?

Answer 1

When company attempts entering in a monopoly industry, it is important for the business person to familiarize reasons behind the industry being a monopoly. Aspects such as economies of scale, regulatory and legal requirements as well as distribution network needs to be identified. The monopolist may consider adopting a predatory pricing so as to the new company from the market.