When economists speak of a competitive market, they have in mind a market with four characteristics:

There are many small buyers and sellers.

We are usually as vague as our student will let us be about what small means. What is important is that no single buyers or sellers should be large enough to influence the market [...]

Adam smith’s notion of an invisible hand as the guiding mechanism of an economy is essential to the economist’s idea of a competitive market. The formal model of competition abstracts from many aspect of real-world competition to highlight the essential elements of resource allocation under competition. The pattern of resource allocation under competition is optimal [...]

Much of industrial economics concerns consequences of market power-the ability of firms to influence the price of the product or products they sell. Here we review the basic economic theory of market power. To establish a reference point, we begin with an outline of the economics of competitive markets. We proceed to a discussion of [...]