Chapter 35 - Different Market Structures Flashcards
Market Structure
The way in which a market is organized in terms of certain characteristics which can be used to explain the behavior of firms in a market.
Perfect Competition
An ideal market structure that has many buyers and sellers, identical products, no barriers to entry; sometimes referred to as total competition.
Imperfect Competition
Any market structure except for perfect competition.
Monopolistic Competition
A market structure where there are many firms, differentiated products and few barriers to entry.
Oligopoly
A market structure with few firms and high barriers to entry.
Barriers To Entry
Restrictions that prevent new firms entering an industry.
Pure Monopoly
Where there is just one seller in the market.
Natural Monopoly
Where with falling long-run average costs, it makes sense to have only one firm providing the good or service.
Concentration Ratio
A measure of the combined market share of the biggest 3, 4 or 5 in a market.
Predatory Pricing
Where a firm sells its goods below average variable cost to force competitors out of the market.
Limit Pricing
Where firms deliberately lower prices and abandon a policy of profit maximisation to stop new firms entering a market.
Collusion
An anti-competitive action by producers.
Barriers To Exit
A restriction that prevents a firm from leaving a market.
Shut Down Price
A firm will stop production when price falls below average variable cost.
Price Competition
Where firms compete on price to attract customers.