11.8 Conclusion

In this chapter, we’ve looked at multiple models of imperfect competition—that middle ground between perfect competition (which we studied in Chapter 8) and monopoly (which we studied in Chapter 9). We started with the reminder that the number of firms in a market is only one of many factors that can determine market prices, quantities, and producer profits. So, it’s no surprise that there are different models of imperfect competition, each of which has different predictions about market outcomes. Which model is the most applicable to any market situation requires some judgment on the part of the economist. Are the products essentially identical, or slightly or completely differentiated? Are the firms setting prices or quantities? Are firms making their choices simultaneously or in sequence? Are there barriers to entry or is entry into the market free? These and other questions need to be considered when choosing the imperfect competition model most applicable to the industry being analyzed. In the next chapter, we examine how individuals and firms may act strategically to achieve a greater outcome (such as increased utility or higher profits).