The Very Long Run and Creative
Destruction
In the very long run, technology changes. New ways of producing old
products are invented, and new products are created to satisfy both
familiar and new wants. These are related to the concept of entry barriers;
a monopoly that succeeds in preventing the entry of new firms capable of
producing its product will sooner or later find its barriers circumvented by
innovations.
A firm may be able to develop a new production process that circumvents
a patent upon which a monopolist relies to bar the entry of competing
firms.
A firm may compete by producing a somewhat different product
satisfying the same need as the monopolist’s product. An example is the
courier services provided by UPS or FedEx that compete with the package
delivery of Canada Post. Canada Post still has a government-granted
monopoly on the delivery of first-class mail, but it has no monopoly on
the delivery of packages, whatever their size.
Finally, a firm may get around a natural monopoly by inventing a
technology that produces at a low minimum efficient scale (MES) and
allows it to enter the industry and still cover its full costs. Cellphone
technology, for example, allows the provider of cell-phone services to