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
Policies towards Dominant Firms
- anti-trust policies
- regulation through taxes
1. lump-sum tax - regulation using pricing policies
1. MC pricing
2. AC pricing - natioanlisation
- liberalisation / deregulation
Nationalisation vs Liberalisation / Deregulation
nationalisation
- an industry / firm is taken over by the government
liberalisation / deregulation
- the relaxation / removal of government regulation to more competition
Sunk Cost Fallacy
when a person is reluctant to abandon a course of action because they have invested heavily in it, even when it is clear that abandonment would be more beneficial
Salience Effect
something that causes people to pay more attention to certain types of information & disregard others
Loss Aversion
a cognitive bias that suggests that the pain of losing is psychologically twice as powerful as the pleasure of gaining
