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Unformatted text preview: Market Structures Market structure refers to the physical characteristics of the market within which firms interact, such as the number of firms in the industry and the existence of barriers to entry Perfect competition has an almost infinite number of firms and no barriers to entry Monopoly is a single firm with barriers to entry Monopolistic competition and oligopoly lie between these two extremes Monopolistic competition is a market structure, with few barriers to entry, in which there are many firms selling differentiated products Oligopoly is a market structure, often with significant barriers to entry, in which there are a few interdependent firms Monopolistic competition The theory of monopolistic competition is built on three assumptions: o There are many sellers and buyers o Each firm in the industry produces and sells a slightly differentiated product o There is easy entry and exit Characteristics of Monopolistic Competition Many sellers o Collusion and strategic decision making is difficult, so monopolistically competitive firms act independently Multiple dimensions of competition o Product differentiation o Perceived quality o Competitive advertising o Service and distribution outlets Easy entry of new firms in the long run o There are no significant barriers to entry o Ease of entry limits long-run profit Monopolistic competition I I The monopolistic competitor is a price searcher For the monopolistic competitor, P>MR, and the marginal revenue curve lies below...
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- Spring '07
- Perfect Competition