Imperfect Competition (1): Monopoly

  • Jack Harvey


In Chapter 11 we stated the assumptions of perfect competition and examined their implications. What happens if any of these assumptions is broken? For instance:
  1. (i)

    A seller may be so large that the quantity he supplies affects the price. Similarly, a large buyer may affect the price by the quantity he demands.

  1. (ii)

    Products may not be homogeneous, because product differentiation or goodwill allows a producer to raise his price somewhat while still retaining some customers.

  1. (iii)

    Lack of knowledge, barriers to entry or immobility of factors of production result in imperfect elasticity of demand or supply. Consumers, for instance, may not have complete knowledge of prices ruling elsewhere — as, for example, in retail markets. Thus sellers can raise their prices without losing all their custom. Similarly, there may not be free movement into the industry. This may arise when again outside firms do not have complete knowledge of the profits being made by existing firms. Or entry may be legally prohibited or made impossible by the inability to obtain essential factors of production. In such cases, existing firms can combine to exert some control over the market supply.



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Copyright information

© J. Harvey 1991

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  • Jack Harvey

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