How does market structure affect the firm's ability to set the price for its products?    

Expert Answers

An illustration of the letter 'A' in a speech bubbles

There are varies different ways that market structure affects how a firm can set prices.

Monopolies: Certain types of businesses are "natural monopolies" such as the airport in a small fairly remote city or many utilities. As monopolies do not have competition, they might appear free to set prices as...

Unlock
This Answer Now

Start your 48-hour free trial to unlock this answer and thousands more. Enjoy eNotes ad-free and cancel anytime.

Start your 48-Hour Free Trial

There are varies different ways that market structure affects how a firm can set prices.

Monopolies: Certain types of businesses are "natural monopolies" such as the airport in a small fairly remote city or many utilities. As monopolies do not have competition, they might appear free to set prices as they wish. Realistically, though, they are limited by buyers willingness to pay for a service. For example, if an airport charges extremely high landing fees, airlines might decide not to land there or people might drive rather than fly. Also, many monopolies, such as utilities, are highly regulated in return for being granted monopolies on specific products or services.

Oligopolies: Oligopolies can either be competitive or form cartels such as OPEC to sustain prices. The particular pricing issues facing oligopolies are slightly more complex than those facing monopolies, as small disruptive companies may enter into a market if prices are set substantially higher than the cost of production and also it is necessary to adjust prices with respect to the wishes of other members of a cartel or oligopoly.

Perfect Competition: In the case of perfect competition, the laws of supply and demand affect pricing as does the pricing of competitors. 

 

Approved by eNotes Editorial Team