8. market structures

Question 1

how do you identify a market structure

Answer 1

number of firms in the industry
the degree to which the firm can influence price
profit levels
firms behaviour - pricing strategies
barriers to entry and exit
contestability
the impact of efficiency

Question 2

what are the four market structures

Answer 2

perfect competition
monopolistic competition
oligopoly
monopoly

Question 3

examples of barriers to entry

Answer 3

patents - protect anyone from copying a new invention for up to 20 years
contracts that consumers already have with existing firms
high set-up costs
R&D costs
brand nameseconomies of scale will allow firms to set lower prices if threatened by new competition
legal reasons (BBC)

Question 4

name and explain the types of barriers to entry

Answer 4

structural - natural barriers that prevent firms from joining the market (high set-up costs, legal barriers)

behavioural - tactics developed by incumbent firms (pricing strategies, advertising, patents, contracts)

Question 5

what are some obsticles to firms leaving the market

Answer 5

sunk costs -costs that cannot be recovered once they have been spent
advertising expenditure - spending on a large advertising plan would be wasted
contracts - a firm may be legally obliged to supply a product for a period of time

Question 6

what is contestability

Answer 6

a market with low barriers to entry and exit is very contestable

low sunk costs

governments can influence contestability through regulations