MGCR 293 Lecture Notes - Lecture 8: Perfect Competition, Market Power, Substitute Good
9 Feb 2018
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Four broad categories of market types (1 being most competitive and 5 being least: perfect competition, monopolistic, competition, oligopoly, monopoly. Coke and pepsi are best described as oligopoly. Firms output and pricing decisions as well as their market power depend on the market structure in which they are operating. The market power is measured by: how much control over price the firm has . In a perfectly competitive market, firms have no market power. They make decisions based on the market price, which they are powerless to influence. In markets that are not perfectly competitive, most firms have some degree of market power. Perfect competition is characterized by homogenous products. Many firms producing homogenous products with no control over price. The products of all firms are perfect substitutes (ex. No barriers to entry by firms currently outside the industry and also no barrier to exit the market. Many buyers and sellers, buyers and sellers are price takers.
