Question

The smartphone market has been dominated by Apple, but recently the Droid has been able to leverage Google's information services into market gains, while Blackberry, known for its secure business-oriented network, has attempted to become more attractive with a “friendlier” interface. At the same time, a number of less capable fringe firms are emerging. Suppose an economist analyzes this industry as follows: ECONOMIST: The market had been a near Apple monopoly. Profits of this monopoly attracted entry by Droid- and Blackberry-based phones, increasing rivalry between firms in the industry. The emergence of smaller fringe firms suggests that entry barriers have fallen substantially, so competition has or will soon become fiercer.

Answer 1

When there is a single firm and many buyers , we define the market structure as monopoly . But when barriers to entry fall substantially , many firms enter the market because of higher profits than normal . The competition increases in the market , total supply increases . This causes prices to fall for each brand . The market will not attain perfect competition because the goods sold by each firm are slightly differentiated , but they will become a monopolistically competitive market . In the long run each firm will earn normal profits .