Text:
Douglas F. Greer, Industrial Organization and Public Policy
There are generally three sets of influences on market price:
Market structure refers to, among other things, the degree of competition
in the industry. This may have to do with the number of independent
competitors in the industry. The number of competitors, however, is not
necessarily the only, or even the most important, factor determining
competitiveness. Usually, but not always, the demand side of the market
is perfectly competitive and it is the supply side that is of concern in
matters of market structure.
In some industries a single seller may set the price so low no competitors
are tempted to enter the market. In other industries a single seller not
having to worry about about potential competitors may utilize its market
control to practice the classical monopoly pricing of economic theory.
Government regulation is another important factor in the market structure of
an industry. Public utility industries are often monopolies but their price
is regulated by a public utility commission so they are not able to take
advance of their market control to earn monopoly profits.
One major approach to industrial organization is the
Structure-Conduct-Performance paradigm. STRUCTURE such as there being only
two firms in the industry leads to a particular type of market CONDUCT
that determines the social efficiency or PERFORMANCE of the industry.