How does the shutdown decision affect markets and firms in a long-term time frame?
1 Answer
It really depends on the type of market we're talking about.
If it is one close to perfect competitivity, then the leaving firm should not have any impact on the market, by definition - because in perfect competition, neither firms (suppliers) nor individuals (demanders) have enough market power (influence) to impact a change.
When it comes to a market close to oligopoly (imperfect competition), the leaving firm will leave a significant hiatus in that market, which might pave the way for even more profit for the remaining companies - which, in turn, do have market power and are prone to earn even higher profits from that market without a competitor.
If it is a monopoly, in the quite awkward hypothesis of shutting down, then the service or good would likely start to be provided by the government, as a public good, as no firm in the Economy would be willing to take that activity.
