Interest in the number and size distribution of firms on the buying side of the market has a along tradition in economics, although it generates less publicity than condition related to market power on the supply side. An important influence here is the theory of countervailing power. The gist of this theory is that concentration of power in one part of a market will evoke balancing concentration of power in other parts of the market. When a few large buyers bargain with a few large sellers (as when automobile manufactures purchase steel or rubber tires), it will be more difficult for sellers to hold the price above the cost, all else equal. Thus the number and size distribution of buyers is an element of market structure that affects firm conduct and market performance.
Among other things, a competitive industry will in the long run supply a product at a price equal to its opportunity cost-the value of the resources needed to produce it.
In contrast, a monopolized market is supplied by but a single seller, who is able to restrict output and hold the price above the opportunity cost of production. Some consumers who would be willing to pay the cost of producing the product are unable to obtain it. It is this output restriction that is central to economists’ belief that monopoly is an inefficient way to organize production.
Concern with the number of sellers reflects the intuitive notion that the fewer the number of sellers in a market, the more likely is the market to perform as a monopoly. Concern with the size distribution of sellers reflects the belief that a market with one very large firm and several small ones is more likely to perform as a monopoly than a market with a few firms of roughly equal size. Like many intuitive nations, these (as we shall see) are sometimes correct and sometimes not.
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