Coercive monopoly

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Definition

A coercive monopoly is a situation where a firm maintains a monopoly on the production of a particular good or service by means of coercively enforced barriers to entry that keeps potential competition away. Such coercion could be of two main kinds:

  • Laws/government regulations that explicitly prohibit competitors from selling those goods or services, or explicitly prohibit buyers from buying goods and services from competitors. This can be viewed as a de jure monopoly.
  • Other extra-legal methods such as the use of private violence against any potential competition.

In jurisdictions with a strong rule of law, extra-legal coercive monopolies are rare and most coercive monopolies are created through systems of rules and government regulations.

Coercive monopoly is to be contrasted with natural monopoly, where the nature of the good or service being supplied makes it more economically efficient for there to be a sole provider, and where high barriers to entry are not enforced through coercion.