A patent is described as "a barrier to entry that grants exclusive use of the patented product or process to the inventor" (Case & Fair, 2003). They are issued by the government and granted to the inventor of a particular product or invention for a specific number of years. In the United States a patent is in effect for 20 years (Case & Fair, 2003). According to the United States Patent and Trademark Office "a patent gives the inventor the right to exclude others from making, using, offering for sale, selling or importing the invention." Because of this, a company or individual holding a patent can claim market power. If a product is exclusive and in demand, the company holding all rights to that product or service will not have any competition and can set its own price for the product. A patent provides a legal barrier to entry. Another type of barrier is the need for a large capital investment to enter a market. This can be in the form of a large production facility, advertising costs, equipment costs, etc. Most firms are unwilling to invest large sums into an existing market if the risk is high.
Supply ownership is another barrier for market entry. If an organization owns an entire supply of a needed input, then that firm can control pricing and resource allocation, therefore will control the market.
Although price control plays a major part in market power, it does not mean that a company can set its price at whatever it chooses. It must still produce a product that the consumer wants or needs and sell it at a price that people are willing to pay. .
Most monopolies, especially firms that provide a need for the consumer can be profitable such as SmithKlineBeecham has been with Paxil. Because Paxil is exclusive to its market, the manufacturer can set its own price for this product. In the pharmaceutical industry, as well as the utility industry, certain products or services are necessary whether to provide basic human needs such as lights and water or medications to assist in quality of life.
