• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Explain how barriers to entry may affect market structure

Extracts from this document...

Introduction

* Explain how barriers to entry may affect market structure Barriers are defined as anything that deters entry into an industry or that prevents exit from an industry. Examples of barriers to entry include patents, economies of scale, and trademarks. Market structure is an organizational and characteristic of a market. There are four different market structures that could be used to explain how firms operate. In perfect competition and monopolistic competition, there are no barriers to entry. This means that other firms can enter or leave the industry freely. In oligopoly and monopoly, on the other hand, high barriers to entry exist and this prevents other firms from entering the industry. ...read more.

Middle

As more and more firms enter the industry, the supply curve for the product will start to shift to the right (because more firms begin to supply the same product). This would decrease the price of the product thus shifting the demand curve downward in PC and leftward in MC. Because there are no barriers protecting incumbent firms and restricting competition, there is high level of competition in the industry since firms have to compete against each other to sell identical (in PC) or slightly differentiated products (in MC). As the industry is dominated by many small firms, individual firms have no market power and are called "price takers" meaning that they have to sell their products at the going market price. ...read more.

Conclusion

short run, the period of time in which at least one factor of production is fixed, and the long run, the period of time in which all factors of production are variable (but the state of technology is fixed). Due to these significant barriers to entry, firms in monopoly and oligopoly maintain their power and are able to restrict competition in the market. As a result, the existence of market power is aided by barriers to entry. In conclusion, barriers to entry affect the characteristic of the market. Firms in PC and MC do not have market power and there is an existence of competition in industry whereas firms in OL and MN have monopoly power and are able to restrict competition. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our International Baccalaureate Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related International Baccalaureate Economics essays

  1. Extended Essay

    The minister said that: "we do not want to support the gas, but we would like to create a subsidy system which depends on the people's need"13. The government discriminated the price of the natural gas according to the people's income.

  2. An Investigation of Vietnam's Barriers of Economic Growth and Development

    The current state structure creates loopholes for corrupt people to plunder state budget. Already, there have been cases where government officials have been arrested for squandering a significant share of investments that come into the country. The 2010 Corruption Perceptions Index placed Vietnam 116th out of 178 countries, with a transparency score of 2.7.

  1. Economics Extended Essay - To what extent has the market for paintings in South ...

    With the slowdown, people received less income than they were expecting. Therefore they did not want to purchase a good that they would have no use for. If a collector feels that he has less money than he expected to have, he will not purchase a painting that he truly

  2. The structure of the EU budget and its allocation

    The European Parliament's first reading of the Draft Budget 2010 took place in October 2009. Total commitment appropriations were set at EUR 141 745 million; EUR 3 801 million higher than Council's first reading. The level of payments was set at EUR 127 526 million (1.08 % of GNI); EUR 7 006 million higher than the Council's Draft Budget.

  1. LDC Essay Economics Barriers to Growth

    Augmented investment would, consecutively, power the production possibility curve outwards and create more monetary wealth. The impact of this increased investment on the production possibility frontier is shown on the right hand side in Figure 12, branded as "Increased Investment Shifting the Production Possibility Frontier".

  2. Explain how interdependence and uncertainty affect the behavior of firms in the oligopolistic market

    Another prediction which allows the kinked demand curve is, that changes in variable cost might not lead to a rise or fall in the profit maximising price and output. In figure 2 it is assumed that a rise in cost such as raw material prices leads to an upward shift in the marginal cost curve from MC1 to MC2.

  1. 15 Historical Economic Questions on Mercatilism and the Development of European Countries.

    Other countries responded in creating their own tariffs, which cut off international trade and resulted in a worsening of economic conditions through exposure to American prices. The financial crisis of 2009 was considered to be one of America?s worst recessions since that of the Great Depression.

  2. Discuss and evaluate the proposition that perfect competition is a more efficient market structure ...

    This also means that a lot of the consumer surplus is being transferred to producer surplus. This harms all consumers. If a consumer must pay higher prices for the same good in a monopoly market than in a perfectly competitive one, their disposable income will be decreasing.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work