Monopoly Market Power
In pure competition sellers
are “ price
, at least
one or more of the conditions
pure competition are violated. This gives sellers or buyers the
ability to influence the market price and allocation
in an optimal allocation or resources given
of an economic
system to allocate resources to their highest
valued uses or to allocate relative scarce resource
maximize the satisfaction of (unlimited) wants in a cultural context
competition is the ideal
that is be benchmark
to evaluate the performance
economic theory of
- monopolistic competitive markets,
- oligopoly and
used to suggest the nature
of problems that may exist
have market power and are able
to distort prices away from the
purely competitive optimum
existence of market power is tied to the demand
conditions the firm
faces. If their product is (or can be differentiated), consumers may
have a preference for one firm’s output relative to others.
negatively sloped demand function
allows the firm to raise
its price and not have its sales fall
pure competition, the firms may all try to influence market demand
but individual producers
do not advertise their own product.
- Many agricultural markets are close to pure competition.
- In many cases some producers try to differentiate their products .
pure competition, the firms’ outputs are homogeneous.
- If the firm has is no opportunity to differentiate their product they have no incentive to advertise and to try to influence the demand for their product.
- If a product can be differentiated by altering the characteristics of the good or simply by convincing the consumers that the product is different , the firm achieves market power.
power is the ability to have some control
over the price of the good
offered for sale