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  • Print publication year: 2005
  • Online publication date: June 2012

Chapter 8 - Market structure and pricing

Summary

Objectives

To define and explain the meaning of markets.

To explain the concept of market structure and its significance.

To describe the characteristics of the different types of market.

To examine the relationships between structure, conduct and performance.

To explain the equilibrium conditions for different types of market in terms of price and output, both in graphical and algebraic terms.

To explain the types and significance of entry and exit barriers.

To give examples of different industries where different market conditions exist, explaining their prevalence.

To examine some welfare implications regarding different forms of market.

To emphasize the importance of oligopolistic markets, and examine the particular problems relating to their analysis.

Introduction

In order to maximize profits or shareholder wealth, managers must use the information that they have relating to demand and costs in order to determine strategy regarding price and output, and other variables. However, managers must also be aware of the type of market structure in which they operate, since this has important implications for strategy; this applies both to short-run decision-making and to long-run decisions on changing capacity or entering new markets.

It is useful to start by explaining the characteristics of markets and different types of market structure, with a general examination of the relationships between structure, conduct and performance. The four main types of market structure are then discussed and analysed in terms of their strategic implications.