ABSTRACT
Chapter 2 reviewed a number of economic explanations of the relationships between the internal organization of firms, their market environments and their performance. These explanations emphasized the importance of various forms of ‘cost minimizing’ imperatives by self-interested agents in the context of either perfect or imperfect markets. Perfect markets are characterized by many buyers and sellers of a homogeneous product, none of whom by their own actions are able to influence price. Information is freely available in the market and there are no restrictions on entry or exit. Entry takes place in response to market opportunities, defined as a situation where price persistently exceeds long run average cost.
