Chapter 9

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University of Toronto Scarborough
Economics for Management Studies
Gordon Cleveland

Chapter 9: Competitive Markets 9.1 MARKET STRUCTURE AND FIRM BEAVIOUR Competitive Market Structure Market structure refers to all the features that may affect the behavior and performance of the firms in a market, such as number of firms in the market or the type of product that they sell. Firms have market power when they can influence the price of their product or the terms under which their product is sold. A market is said to have a competitive structure when its firms have little or no market power. The more market power the firms have, the less competitive is the market structure. The extreme form of competitive market structure occurs when each firm has zero market power. Perfectly competitive market is a market where there is no need for individual firms to compete actively with one another because none has any power over the market. Competitive Behaviour This is the degree to which individual firm actively compete with one another for business. The Significance of Market Structure Market structure plays a central role in determining the behaviours of individual firms and also in the overall efficiency of the market outcome. 9.2 THE THEORY OF PERFECT COMPETITION The perfectly competitive market structureusually referred to simply as perfect competitionapplies directly to a number of markets, especially many agricultural and raw-materials markets.
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