Next we consider the efficiency results for monopoly. Recall that a monopolist never faces market forces directly in the form of entry or exit or a competitor's lower prices. Indeed, the only market forces acting on a monopolist are those of potential entrants and potential takeovers.

    Certainly the threat of a takeover or new entrant is never as imminent as the certainty in perfect competition that, if you raise prices, everyone else will sell for less, or the threat in Monopolistic Competition that if you earn a profit it will disappear as new firms enter. Nevertheless, in some industries the impact of potential entrants may significantly affect firm decisions.

Copyright © 1995-2004, Inc. - All Rights Reserved