4.1 Competition and market power Flashcards
What is a monopoly?
A sole supplier faces no direct competition
Give an example of an industry that is a monopoly.
UK rail operator franchises give firms a monopoly on their routes
HOWEVER, in indirect travel market, rail has substitutes –> rail market less powerful than other monopolies
What is monopoly power?
Firms have monopoly market if their market share is large enough for them to influence the market –> usually 25%
What is the spectrum of competition?
Range of levels of competition in supply to markets
What is normal profit?
Just enough profit to keep firms in the industry
Describe the perfect competition theory.
Demand is the result of utility that products offer consumers
Consumers are willing to pay up to the price justified by the utility of the product
Suppliers forced to be cost efficient to make normal profit
Equilibrium: D=S
What are the characteristices of perfect competition?
Many buyers and sellers
Identical products
Objectives for everyone: profit
Pefect knowledge of price, tech and prod
No barriers to entry or exit
Perfect mobility of FoP
Normal prift inevitable in LR
What is a duopoly?
2 suppliers only
What is an oligopoly?
A few large firms, most with additional small firms with very little market share
Give an example of an oligopoly
UK energy supply dominated by six large oligopolists, few smaller firms
What is monopolistic competition?
Involves product differentiation but otherwise keeps assumptions of perfect competition
