Final answer:
Factors like tariffs, transportation costs, and technical specifications can prevent the law of one price from holding true. Moreover, both government-enforced barriers (such as licensing laws) and non-government barriers (like a well-known trademark or owning resources) can impact market entry.
Step-by-step explanation:
When analyzing factors that might prevent the law of one price from holding true, several elements should be considered:
- Tariffs: They are government-imposed duties on imports that increase the cost of foreign goods, making them less competitive against domestic products.
- Transportation costs: These are expenses related to moving goods from one place to another. High transportation costs can cause prices to vary between markets.
- Technical specifications: Differences in product standards or specifications can lead to variation in prices, as products cannot be perfectly substituted across markets.
On the other hand, elements that create barriers to entry can also have an impact on market dynamics:
- Government-enforced barrier to entry: A city passes a law on how many licenses it will issue for taxicabs.
- Government-enforced barrier to entry: A city passes a law that all taxicab drivers must pass a driving safety test and have insurance.
- Barrier to entry that is not government-enforced: A well-known trademark provides a competitive advantage that can prevent new entrants from gaining a significant market share.
- Barrier to entry that is not government-enforced: Owning a spring that offers very pure water is a natural advantage that others cannot easily replicate.
- Barrier to entry that is not government-enforced: In an industry where economies of scale are very large compared to the size of demand in the market, it becomes difficult for new firms to enter and compete effectively.