The extent to which firms influence price also varies across the market
structures. A typical firm in a perfectly competitive market is so small that it
has no influence over price; rather, the market—via the forces of supply and
demand—determines the current price. In contrast, the pure monopolist—
a pharmaceutical company selling a wonder drug under patent, for
instance—has maximum power to raise prices. Oligopoly represents a mid-
dle ground between perfect competition and pure monopoly. When a small
number of large firms dominate a market, price competition tends to be
blunted, with higher prices being one result.
Market structure also has a direct bearing on the role of government reg-
ulation. In markets where competition is vigorous, government regulation is
unnecessary and inappropriate. Regulation is necessary, however, to prevent
the potential monopolization of markets and prohibit anticompetitive prac-
tices by firms, and to oversee the pricing, production, and investment deci-
sions of natural monopolies.
The following chapter examines perfect competition, and Chapter 8 ana-
lyzes the instances of pure monopoly and monopolistic competition.
Chapter 9 considers competition within oligopolies. Chapter 10 focuses on
game theory, a basic tool for analyzing competitive strategies within mar-
kets. Chapter 11 concludes this section by examining the role of govern-
ment in regulating private markets and in providing public goods and
services in the absence of private markets.282
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