EM c8 market structure: monopoly and monopolistic competition

imperfectly competitive markets /imperfect competition- -  - - - other three models

market power- the ability of a firm  to influence product prices and develop other competitive strategies that enable it to earn large  profits over longer periods of time
- - - - related to the barriers to entry in a given market

monopoly
a market structure characterized by a single firm producing a product with no close substitutes

price-setter
a firm in imperfect competition that faces a downward sloping demand curve and must set the profit-maximizing price to charge for its product

profit maximization/ MR =MC

difference: in perfect competition, product price equals marginal cost ----in imperfect competition, price>marginal cost

firms with market power may choose market share over profit in short term

market power causes a misallocation of resources compared with perfect competition

barriers to entry
the structural, legal, or regulatory characteristics of a firm and its market that keep other firms from producing the same or similar products at the same cost

major barriers
1. economies of scale
2. barriers created by government
3. input barriers
4. brand loyalties
5. consumer lock-in and switching costs
6. network externalities

lock-in and switching costs
a form of market power for a firm in which consumers become locked into purchasing certain types or brands of products because they would incur substantial costs if they switched to other products
--competitive strategy for managers

network externalities
a barrier to entry that exists because the value of a product to consumers depends on the number of consumers using the product