9.1 Market Structure and Firm

Behaviour

The term market structure refers to all the features that may affect the
behaviour and performance of the firms in a market, such as the number
of firms or the type of product they sell. In this chapter, we focus on a
competitive market structure.

Competitive Markets

Economists say that firms have market power when they can influence
the price of their product. The competitiveness of the market is the degree
to which individual firms lack such market power.

A market is said to be competitive when its firms have little or no market power. The more

market power the firms have, the less competitive is the market.

The extreme form of competitive market structure occurs when each firm
has zero market power. In such a case, there are so many firms in the
market that each must accept the price set by the forces of demand and
supply. The firms perceive themselves as being able to sell as much as
they choose at the prevailing market price and as having no power to
influence that price. If the firm charged a higher price, it would make no
sales; so many other firms would be selling at the market price that
buyers would take their business elsewhere.

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