3.1 Market structures Flashcards
What are the 6 conditions for perfect competition?
- Large numbers of buyers and sellers
- Low barriers to entry/exit
- Homogeneous products
- Unable to influence market ruling price
- Perfect information
- Can buy/sell as much as they want at the market ruling price
What is monopolistic competition?
Lots of sellers but each one sells slightly different product
What are the conditions of an oligopoly?
A few mutually independent firms competing against each other in a market
What are the conditions of a duopoly?
- Price makers
- Two firms produce for the entire market and compete against each other
What are the conditions of a monopoly?
- Either price maker or quantity setter
- One firm producing 100% of the output for the market
What are natural barriers to entry/exit?
Barriers that result from inherent features of the industry, such as economies of scale or high research and development costs
What are artificial barriers to entry/exit?
Barriers erected by the firms themselves, such as high levels of advertising expenditure
What is limit pricing?
Prices set low enough to make it unprofitable for other firms to enter the market
What is predatory pricing?
Prices set below average costs with the aim of forcing rival firms out of the business
What is product differentiation?
The marketing of generally similar products with minor variations or the marketing of a range of different products
What are examples of natural barriers to entry/exit?
- Economies of scale
- A large amount of capital is required e.g oil refining
- Large research and development costs are needed
What are examples of artificial barriers to entry/exit?
- Patents
- Product differentiation
- Benefiting from first mover advantage
- Spending heavily on advertising
- Limit pricing
- Predatory pricing
