ECON545 Lecture 3 Overview

The key factor that distinguishes these three market structures from the perfectly competitive model is the existence of barriers to entry of other firms into the market. What this means to the firms in these markets is that they always have some discretion over setting the prices of their products or services. Firms in these markets must decide both the quantity to produce and the price at which the output will be sold. By contrast, firms in perfect competition must take the price as given by market forces, so the only real decision they have is the quantity to produce.

There are many ways in which barriers to entry arise. We will explore a few of these, but keep in mind that there are many more subtle barriers that exist. This week, think about the firms and industries in which each of you works. What kind of market structure best describes it? How much pricing discretion does it have? What are the competitive pressures like? What are some barriers to competition?
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