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economics micro > 3.4 Competitive and Concentrated Markets > Flashcards

3.4 Competitive and Concentrated Markets Flashcards

1
Q

4 types of market structures

A

perfect competition
monopoly
oligopoly
monopolistic competition

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2
Q

what does a monopoly mean

A

One seller dominating the market
25% or more of market share = monopoly power

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3
Q

what should the conditions of a monopolistic market be

A
  • High barriers to entry and exit
  • Differentiated products (no close substitute)
  • Imperfect information
  • Firms are price makers
  • Firms is a profit maximiser
  • (MR = MC)
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4
Q

what does allocative efficiency mean

A

Allocative efficiency = resources are being allocated are at a good efficiently
( consumers aren’t being exploited and prices are at a good level)

price = mc

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5
Q

productive efficiency means

A

Quantity is at lowest point on AC curve (producing at lowest cost)

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6
Q

dynamic efficiency

A

When firms have enough money to invest in tech and capital

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7
Q

what does perfect competition mean

A
  • a large number of small firms
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8
Q

characteristics of perfect competition

A

No barriers to entry/exit
Perfect information
Homogenous- (the same) goods being sold
Many buyers and sellers (infinite)
Firms are price takers

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9
Q

what is monopolistic competition

A

a large number of firms within a market

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10
Q

characteristics of monopolistic competition

A

Many buyers and sellers
Slightly differentiated goods
Non-price competition (advertising. specialisation)
Good information
Low barriers to entry and exit
Firms are price makers
Price elastic demand (substitutes)
Firms are profit maximisers (MR = MC)

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11
Q

what is an oligopoly

A

small number of large firms in an industry

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12
Q

characteristics of an oligopoly

A
  • high barriers of entry and exit
  • Product differentiation (branding)
  • interdependence of firms (actions of one firm will affect another firms behaviour)
  • high concentration ratio
  • Firms are price makers
    -non price competition
  • profit maximisation is not the sole objective
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13
Q

example of a monopoly

A

google

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14
Q

example of perfect competition

A

farmers markets

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15
Q

example of monopolistic competition

A

hairdressers and barbers

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16
Q

examples of oligopoly

A

supermarkets and airlines

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17
Q

examples of barriers to entry

A

Capital costs
2. Sunk costs
3. Scale economies
4. A natural monopoly
5. Natural cost advantages
6. Legal barriers
7. Marketing barriers
8. Restrictive practices
9. Innocent entry barriers
10. Product homogeneity
11. knowledge

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18
Q

objective of firms=

A

profit maximisation

19
Q

why is profit maximisation an objective

A
  • re investment
  • dividends for share holders , share holders are owners of a company, without their finance = no company
  • lower cost profit = TR-TC business may keep costs very low = greater profit. and pass lower costs to consumers
  • reward enterpanuriship
20
Q

when does profit maximisation occur

A

mc= mr

21
Q

why is profit maximisation not an objective

A

-avoid scrutiny
-key stakeholders could be hardened

22
Q

other objectives of firms (not profit maximisation)

A

-profit satisficing- sacrificing profit to satisfy stakeholders

-revenue maximisation = occurs when MR= 0
may want to do so increase eos (revenue larger then profit), predatory pricing (undercut competitors and drive them out)

-sales maximisation (eos), limit pricing (business wants to get bigger without losing cost) ac= ar this limits competition

-flood market to develop loyalty and gain consumers

-survival (short run when they enter a hyper competitive market) spread brand awareness

23
Q

what does the price in a perfect competition market depend on

A

In such markets the price is determined by the interaction of demand and supply.

24
Q

Why profits are likely to be lower in a competitive market than in a market which is dominated by a few large firms.

A

In a competitive market, profits are likely to be lower than a market with only a few large firms. This is because each firm in a competitive market has a very small market share. Therefore, their market power is very small.

25
Q

a pure monopoly=

A

single supplier within a market (no close competitor or sunsititues) 90%

26
Q

in a perfectly competitive market how is price determined

A

by the interaction of
demand and supply.

27
Q

characteristics of a pure monopoly

A
  • lots of eos
    -high barriers to entry
    -no close substitutes (localised monopoly power)
28
Q

features of monopoly power

A

-Price setting power including the option of using price discrimination
-Market power depends on the structurall characteristics of the industry
-Ability to harness barriers to entry to maintain supernormal profits in the long run
-Even firms with a lot of market power might need to consider the threat of potential rivals

29
Q

pure monopolies have monopoly power

A
30
Q

difference between pure monopolies and monopoly power

A

A monopoly (in the pure sense) is when a firm controls 100% of the market - the firm is the market.
monopoly power is when a firm has monopoly-like power in the market due to a high proportion of the market share.

31
Q

what is monopoly power influenced by

A

Monopoly power is influenced by factors such as barriers to entry, the number of competitors, advertising and the degree of product differentiation.

32
Q

what is monopoly power influenced by

A

Monopoly power is influenced by factors such as barriers to entry, the number of competitors, advertising and the degree of product differentiation.

33
Q

potential benefits of monopolies

A

-economies of scale done by greater monopoly power mc curve could be lower due to greater eos asa result profit high but not as alloctivley effeicent.
-more invention and innovation.
-dynamic efficiency ( re-invest supernormal profits back into the business )
-cross subsidisation.

34
Q

cons of monopolies

A
  • allocative inefficient
    -productive inefficient
    -higher prices could cause inequalities
35
Q

pros of competitive markets

A

-allocative efficient
-productive efficient
-greater quantity produced means more job availability

36
Q

cons of competitive markets

A

lack of dynamic efficiency
lack of eos
cut cost in dangerous areas (hygiene, safety)

37
Q

what is price discrimination

A

Where a firm charges different prices to different consumers for an identical good/service with no differences in cost of production

38
Q

3 conditions for a firm to be able to price discriminate

A

price making ability- the ability to set prices (monopoly power)

information to separate the market (consumers with different elasticity is of demand, inelastic= higher charge)

prevent re-sale

39
Q

what is 1st degree price discrimination

A

consumers are charged exactly price they’re willing and able to pay which erodes all consumer surplus in the market and turns it into monopoly profit

40
Q

what is 2nd degree price discrimination

A

charging consumers a different price for the amount or quantity consumed (prices decrease to maximise sales.)

41
Q

what is 3rd degree price discrimination

A

when a firm segments the market into different price elasticities of demand

42
Q

cons of price discrimination

A
  • allocative inefficiency of price discrimination firms charging prices beyond marginal cost - exploiting consumers

-inequality- (1st degree, inelastic 3rd degree) if they have low incomes it could widen income inequality

-anti- competitive nature of pricing= 3rd degree elastic, if price lower u drive out competitors cus u gain consumers and therefore firm gains pure monopoly power

43
Q

pros of price discrimination

A
  • dynamic efficiency = greater profits = more reinvestment
    -eos= greater quantity
    -consumers benefit (2nd degree and elastic 3rd)
    -cross subsidisation= higher profits firm make may be able to cross subside any loses from diff goods in a firm

economics micro (5 decks)

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