Competing within Markets
I
n the previous chapters, we have examined managerial decisions of typical
firms facing demand and cost conditions. Although we have noted specific
products and industries, we have carried out the analyses without explicit
reference to types of economic environments. In this section’s five chapters,
we take a closer look at the market environments in which firms compete.
Economists and management scientists traditionally divide markets into
four main types: perfect competition, monopolistic competition, oligopoly,
and pure monopoly. These market types differ with respect to several key
attributes: the number of firms, the extent of barriers to entry for new firms,
and the degree to which individual firms control price. In perfect competi-
tion and monopolistic competition, many sellers supply the market, and new
sellers can enter the industry easily. In a pure monopoly, in contrast, a sin-
gle firm is the industry. There are no direct competitors, and barriers to new
entry are prohibitive. Oligopoly represents an intermediate case: The indus-
try is dominated by a small number of firms and is marked by significant, but
not prohibitive, entry barriers.SECTION IIII
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