5.1 Market structures

Question 1

what is the definition of a market structure?

Answer 1

the organisational and other characteristics of a market

Question 2

what are the 7 features we look at to determine what is the type of market structure?

Answer 2

number of firms in the market

market share of the largest firms (concentration ratio)

nature of costs and nature of sales incurred/earnt by firms in the market

the existence/extent of barriers to entry/exit

ease of information about market

extent of product differentiation and the adoption price setting procedures

if firms are effected by buyer behaviour in the market

Question 3

name the spectrum of competition from the most competitive to the least competitive market structure

Answer 3

perfect competition

monopolistic competition

oligopoly

duopoly

monopoly

Question 4

what is the definition of entry barriers

Answer 4

obstacles that make it difficult for a new firm to enter the market

Question 5

what is the definition of exit barriers

Answer 5

obstacles that make it difficult for an established firm to leave the market

Question 6

what is product differentiation

Answer 6

the marketing of generally similar products with minor variations (e.g. mobile phones) or the marketing of a range of different products

Question 7

what are the types of barriers to entry

Answer 7

Legal e.g. patents (legal monopoly power), licences/permits (difficult and expensive), Red tape (excessive paperwork), standards regulation

technical (industry specific), start up costs, sunk costs, economies of scale and natural monopolies

strategic, predatory pricing, limit pricing and heavy adverting

brand loyalty, consumers unlikely move to new products

Question 8

examples of barriers to exit

Answer 8

under valuation of assets

redundancy costs

sunk costs

penalties for leaving contracts early e.g. office rent or suppliers contracts