chapter 3B Flashcards
Types of Market Structures
- perfect competition
- monopolistic competition
- oligopolistic
- monopoly
Characteristics of Perfect Competition
- large number of sellers & buyers
- homegenous / standardised g&s
- complete freedom of entry / exit
- perfect knowledge on market
- price taker (no markey power)
Characteristics of Monopolistic Competition
- many buyers / sellers
- differentiated g&s
- ease of entry / exit
- imperfect knowledge on market
Characteristics of Oligopoly
- few sellers
- standardised / difeerentiated g&s
- significant barriers of entry / exit
- imperfect knowledge on market
Types of Oligopolies
non-collusive
firms compete with each other
collusive
firms act together
Characteristics of Monopoly
- only 1
- one unique g&s
- blocked entry / exit
- imperfect knowledge on market
Barriers of Entry for Monopoly
natural / structural barriers
- control of essential resources / access to markets
- technological superiority
- economies of scale
artificial / strategic barriers
- contrived / deliberately erected barriers
- limit pricing
- legal / statutory barriers
- network effects
Shut Down Condition for Monopolistic Competition
when total revenue is less than total variable cost
Behaviour of Oligopolies
- mutual interdependence
non-collusive - price rigidity
- kinked demand curve
Mutual Interdependence meaning
when each firm is affected by its rivals’ decisions
Reason for Price Rigidity & Kinked Demand Curve
- if a firm lower prices, other firms are likely to match this fall in price. Thus, price is relatively price inelastic when prices are lowered
- if a firm raise prices, other firms will not follow this rise in price. Thus, price is relatively price elactic when prices are raised
Strategies for Oligopolies
non-collusive oligopolies
1. non-price competition :
2. price competition :
- price wars
- predatory pricing
3. mergers & acquisition :
- vertical
- horizontal
- conglomerate
collusive oligopolies
1. collusion :
- formal collusion & cartel
- tacit collusion & price leadership
2. non-price competition
3. price competition
Price Discrimination definition
occurs when a firm sells the same product to different buyers at 2 / more different prices for reasons ** not associated with differences in costs**
3rd Degree Price Discrimination definition & conditions
- price discrimination were consumers are grouped into 2 / more independent markets and a separate price is set for each market
- firms must be able to :
1. set prices (have pricing power)
2. seperate the market & prevent reselling of g&sface different price elasticities of demand
Non-Price Competition Strategies
product differentiation
- product development
- product innovation
- process innovation
- marketing
cost & revenue strategies
- growth
- diversification
