• 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

or


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

    of the economy and diminishing the bureaucratic nature of commerce in Vietnam. However it is unlikely that the Communist leaders will allow this to happen. Additionally, Vietnam relies heavily on SOEs to generate wealth for the nation. Under each company, workers enjoy the same share of benefits from growth despite any disparity in productivity.

  2. The structure of the EU budget and its allocation

    agricultural expenditure (+ EUR 305 million, mostly due to the exceptional "milk" measures) and the proposed additional needs related to the rural development part of the second stage of the EERP (+ EUR 420 million in commitments). Furthermore, the "energy projects" part of the second stage of the EERP (EUR

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

    Artists popular with speculators would see the price of their paintings increase by a great amount. Another reason why the prices rose all of a sudden was the effect of the galleries. Galleries would often delay the selling of a painting even if the buyer was offering the price the gallery wanted.

  2. Extended Essay

    Profit maximisation is defined as the balance between marginal cost (MC) and marginal revenue (MR). The price is defined by Pm, quantity by Qm as opposed to Pc and Qc in situation of perfect competition. Abnormal profit is possible in the short and long run, and the social cost is significant.

  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. Equal rights for women in labour market in Lithuania

    In spite of the fact that Lithuania is presented as an example for many other states in the field of gender equality, according to the data from the Department of Statistics of Lithuania the situation for women gets worse

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

    Even in this model price wars can occur, so that a firm gets an advantage in the short term over the other firms and gains some extra market shares. Recently the major UK supermarkets had this kind of competition war.

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

    This yields a negative externality to other markets, as the demand will be lower in other markets. Ultimately, this may lead to a slowdown in economic growth. A notable real life example of this is OPEC?s influence on oil prices.

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