As we saw, Perfect Competition represented an extreme version of an industrial structure. At the other extreme is Monopoly. Instead of many small firms, each so small as to be unable to affect market price, Monopoly is characterized by a single firm. Such an industry can only exists if there are very strong barriers to entry or if the market is simply too small to support two firms.

It is common for beginning students to think that, because a firm has a monopoly on a market it can do "anything it wants." While a monopolist typically does have more freedom of action than a firm in perfect competition, we shall see that there are quite real limits to what a monopolist can do and to what prices it can realistically charge.

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