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  • Print publication year: 2010
  • Online publication date: June 2012

11 - Firm strategy under imperfectly competitive market conditions

from Book III - Competitive and monopoly market structures

Summary

Differences in tastes, desires, incomes and locations of buyers, and differences in the use which they wish to make of commodities all indicate the need for variety and the necessity of substituting for the concept of a “competitive ideal,” an ideal involving both monopoly and competition.

Edward Chamberlin

We have so far considered two distinctly different market structures: perfect competition (characterized by producers that cannot influence price at all because of extreme competition) and pure monopoly (in which there is only one producer of a product with no close substitutes and whose market is protected by prohibitively high barriers to entry).

Needless to say, neither of those theoretical structures well describes most markets. Even in the short run, producers typically compete with several or many other producers of similar, but not identical, products. General Motors Corporation competes with Ford Motor Company and a number of foreign producers. McDonald's Corporation competes with Burger King Corporation, Carl's Jr., and any number of other burger franchises, as well as with Pizza Hut, Popeye's Fried Chicken, and Taco Bell.

In the long run, all these firms must compete with new companies that surmount the imperfect barriers to entry into their markets. In short, most companies competing in the imperfect markets can cause producers to be more efficient in their use of resources than under pure monopoly, although less efficient than in perfect competition. Part A of this chapter develops the theory of competition in obvious markets, those for products.