![armwrestlinggb0bf9556c_1280.jpg](https://i.imgur.com/KwK0q0i.jpg)\

Economists have discovered three primary elements at work in imperfectly competitive marketplaces when studying the drivers of concentration. Economies of scale, barriers to entrance, and strategic engagement (the first two were discussed in the previous chapter, and the third will be discussed in depth in the following section):

1. Expenses Only a few firms can profitably exist when the minimum efficient size of operation for a fi rm occurs at a significant fraction of industry production, and oligopoly is likely to result.

2. Obstacles to competition When there are huge economies of scale or government entrance restrictions, the number of competitors in a given industry is limited.

3. Interaction that is strategic. When there are only a few companies operating in a market, they will quickly realize their reliance. When each firm's business is dependent on the behavior of its rivals, strategic interaction emerges, which is a really novel aspect of oligopoly that has inspired the field of game theory.

![creditcardsg786e82079_1280.jpg](https://i.imgur.com/r7AytUZ.jpg)

Why are economists so concerned about industries that have a high level of imperfect competition? The answer is that such businesses act in ways that are detrimental to the public good. Imperfect competition, for example, usually results in prices that are higher than marginal costs. Without the pressure of competition, service quality can sometimes deteriorate. High costs and low quality are both undesirable consequences.

Oligopolistic industries generally (but not always) have supernormal profits as a result of high prices. Political attacks have been made on the highly concentrated cigarette and pharmaceutical sectors' viability on several times. Concentrated industries, on the other hand, have only marginally greater rates of profit than unconcentrated sectors, according to careful studies.

Large firms are responsible for the majority of research and development (R&D) and innovation in a contemporary economy, which has historically been one of the key defenses of imperfect competition. This theory has some validity, as highly concentrated industries can spend a lot of money on R&D per dollar of sales in order to gain a technological advantage over their competitors. Individuals and small businesses, on the other hand, have developed many of the most significant technological breakthroughs.


![dividerg269644e68_1280.png](https://i.imgur.com/RG5hmfU.png)

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