14 - PURE COMPETITION AND MONOPOLY

Abstract

This chapter provides an overview of the market structures of pure competition and monopoly. It discusses the different structures that affect the revenues and output decisions of the firms operating within them. The market structures of pure competition and monopoly is explained as a means of comparing the two ends of the market spectrum. The competitive process emphasizes the rivalry between firms—the effort on the part of a seller to outperform the competition. Competing firms may use a variety of things—quality of product, style, convenience of location, advertising, and price—to convince consumers that they are offering a better deal. Independent action and rivalry are the essential ingredients of the competitive process. Bridled by competition, self-interest leads to economic cooperation and provides a powerful fuel for the benefit of humankind. Thus, the competitive process occupies center stage in economic analysis, which seeks to explain the forces that direct the economic behavior of human beings. While pure competition is a market structure with many sellers and competitive forces, monopoly is just the opposite. The word monopoly, derived from two Greek words, means single seller. It is a market structure characterized by high barriers to entry and a single seller of a well-defined product for which there are no good substitutes.