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Market Structure
o Perfect (pure) competition
Price–taking firms each with no influence over the ruling market price (see diagram
below)
Free entry and exist of businesses in the long run – drives down profits towards a
normal profit equilibrium level
Each supplier produces homogeneous products – each a perfect substitute – hence
the perfectly elastic demand curve for the individual supplier
Key factor - interdependent nature of pricing decisions between rival firms
Each firm must consider strategic behaviour of other “players� in the market
Objective might be protecting market share or increasing market share
Game theory can help to model different types of behaviour (both price and non-
price competition)
Kinked demand curve model is another possibility
o Contestable markets
Markets where the entry and exit costs are low
Potential for hit and run entry to cream off profits if incumbent firms are being
inefficient (e.g. exploiting the consumer by......

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Approximate Word Count: 954
Approximate Pages: 4 (250 words per double-spaced page)

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