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Homework answers / question archive / How does market structure affect the firm's ability to set the price for its products?
How does market structure affect the firm's ability to set the price for its products?
Generally, the type of market structure in a particular industry determines the level of competition. Arguably, market structure determines the firm's set of choices in that industry need to consider when making decisions relating to the pricing of its products and services. In highly competitive markets, competition forces are high due to a large number of sellers; hence, the firm will set standard prices for its products. On the other hand, a less competitive market structure has few sellers; therefore, it can offer high prices since it provides unique products or services and lacks substitutes. For example, in monopolistic competition, the firms are free to set the prices.