4.1 Competition and Market Power Flashcards
What is the the Spectrum of Competition?
A way of defining the differences between the main market structure
Define market structure
How many businesses there are competing in the market and how they behave in relation to each other
What is ‘Perfect Competition’?
A hypothetical concept where there is the maximum amount of competition
What are the 4 market structures in the Spectrum of Competition in the correct order?
Perfect Competition
Imperfect Competition
Oligopoly
Monopoly
Define ‘Normal Proift’
The amount of profit required for a firm to stay in business
What type of product is sold when ‘Perfect Competition’ is in place?
Homogenous (exactly the same as all suppliers)
What is the pricing like in ‘Perfect Competition’?
All firms are price takers (cannot choose the price they set)
What is knowledge like in ‘Perfect Competition’?
Perfect knowledge
What kind of profits are made in ‘Perfect Competition’?
Normal Profit (only the profit required to keep the firm in business)
Why is ‘Perfect Competition’ used if it’s only a theoretical concept?
Useful as a comparison tool to evaluate other markets
What is a Monopoly Market Structure?
There is one dominant business operating in the market (Has over 25% of market share)
How easy is it to enter a Monopoly Market Structure?
Very difficult because there’s such a dominant firm to compete with
What are the profit levels like in a Monopoly Market Structure?
Very high because prices can be set very high because there’s little competition
Why may a Monopoly Market Structure be inefficient?
A lack of competition can cause inefficiency
What is consumer choice like in a Monopoly Market Structure?
Very little choice
Give an example of a Monopoly Market Structure
Rail Network or Water Supplier
What is an Oligopoly Market Structure?
Where several large firms dominate the market
What are the barriers to entry like in a Oligopoly Market Structure?
High
What is the main competing factor in a Oligopoly Market Structure?
Non-Price competition
Give an example of an Oligopoly Market Structure?
Supermarket
Petrol Company
High Street Bank
What is an Imperfect Market Structure?
Where competition exists but is not as strong as it might be
What kind of pricing strategy could be deployed in a Perfect Competition Market?
Competitive
- Price takers
- Have no control over pricing
What kind of pricing strategy could be deployed in a Monopolistic (Imperfect Competition) Market?
Competitive
Premium
Predatory
What kind of pricing strategy could be deployed in an Oligopoly?
Price-Skimming
High Price
Follow each other
What kind of pricing strategy could be deployed in a Monopoly?
Predatory
Cost-Plus
What is another name for a market with Imperfect Competition?
Monopolistic Market
Give 5 methods of non-price competition
Innovation Loyalty Scheme Customer Service Branding Promotions