5.1 Market Structure Flashcards
What is a market structure?
The organisation and characterisation of a market
What are some important factors of market structure?
-number of firms
-market shares of largest firms
-nature or costs incurred
-nature of sales revenue earned
-extend to which barriers to entry and exit exist
-ease of access to information
-extend to which firms in the market undertake product differentiation
-ways firms are affected by buyers
What are the two extremes of a type of market?
-monopoly
-perfect competition
A duopoly lies between…
A monopoly and oligopoly
What is Monopolistic competition and where is it situated?
‘Imperfect competition among the many’
-lies between perfect competition and oligopoly
What are the conditions of perfect competition?
-large number of buyers and sellers
-no barriers to entry or exit
-able to buy and sell as much as they want at the market price
-unable to influence market price
-uniform product
Oligopoly?
A few mutually independent firms each needing to take account of its rivals reactions when deciding its own marketing strategies
How can you distinguish between different market structures?
-number of firms
-degree of product differentiation
-number of buyers and sellers
What is wrong with perfect competition?
An abstract theory rather than a real world market structure
Why are the the most perfect markets imperfect rather than perfect?
It is impossible for all the conditions of perfect competition to be met at one time
Does pure monopolies actually exist in society?
Yes they do(although market being dominated by one firm is far more common)
How does a monopoly exist in the UK
Thames water, you can’t shop around for different water for your tap it automatically comes from Thames water
What is monopolistic competition often described as?
Imperfect competition
What happens in an oligopoly?
There are only a few firms in a market(in terms of large firms)
Though often large firms coexist with small firms
When are concentration ratios used?
When oligopoly is defined in terms of market structure (interdependence among firms that make up the market is a main characteristics when oligopoly is defined in terms of market behaviour)
Entry barriers?
Obstacles that make it difficult for a new firm to enter a market
What is market structure affected by!
The ease of entry and exit into and out of the market
What is a pure monopoly protected by!
Entry barriers
What are exit barriers?
Obstacles that make it difficult for an established firm to leave a market
What can weaken and destroy monopoly power?
Development of new competing technologies weakens and often destorys monopolies
How can established firms deter new firms from entering the market?
Set low prices known as limit prices
What do limiting pricing do for a firm?
Sacrifice short-run profit maximisation in order to maximise long term profits
When Predatory pricing?
Occurs when an establishment or incumbent firm deliberately sets prices below costs to force new market entrants out of business
Product differentiation?
The marketing of generally similar product with minor variations (or the marketing of a range of different products)
