Compare and contrast the suitability of different market structure for fostering technological advance

What will be an ideal response?

Certain market structures may be best suited to foster technological progress. Each structure has strengths and limitations on this issue. (1) Pure competition: Strong competition gives firms the reason to innovate, but the expected rate of return on R&D may be low or negative for a pure competitor. (2) Monopolistic competition: These firms have a strong profit incentive to develop and differentiate products, but they have limited ability to obtain inexpensive R&D financing. It is also difficult for these firms to extract large profits because the barriers to entry are relatively easy. (3) Oligopoly: Although the size of firms makes them capable of promoting technological progress, there is little reason for them to introduce costly new technology and new products when they earn large economic profits without doing it. (4) Pure monopoly: This firm has little incentive to engage in R&D because its high profit is protected by high barriers to entry.