Chapter 7 Flashcards
List the ways in which a government may create a monopoly.
by issuing a patent
by issuing exclusive franchises
by allowing market restrictions and through exemptions from antitrust regulations
List and briefly describe four types of monopolies.
natural monopoly - produce products for lowest cost and force competitors out of business and need large investments
geographic monopoly - best location
government monopoly created by legal barriers to entry
technological monopoly - seller has a government patent, the to exclusively manufacture an invention for a specified number of years
List the four strict conditions for perfect competition.
many buyers and sellers participate in the market
sellers offer identical products
buyers and sellers are well informed about products
sellers are able to enter and exit the market freely
what are the conditions for pure monopoly?
single seller
no subsidies
no entry
almost complete control of market price
what are the conditions of monopolistic competition
numerous sellers
relatively easy entry
differentiated products - each seller sells a slightly different product
nonprice competition - business compete by product differentiation and by advertising
little control over price
what are four ways that companies may compete by nonprice competition?
physical characteristics of the product
location
service level
advertising, image, or status
what are the conditions of oligopoly
dominion by a few sellers
barriers to entry
identical or slightly differing products
nonprice competition - competition takes the form of product differentiation and advertising that emphasizes major differences and attempt too build consumer loyalty
limited control over price
how might predatory pricing hurt the predator
they altar it where the price is below the cost. bigger businesses can absorb losses. cost money.
under what conditions will the government block a merger? how might certain mergers benefit the consumer?
if two companies become so powerful that they create a monopoly. if companies are complementary they benefit consumers by working together.
A market structure in which a large number of firms all produce the same product and no single seller controls supply or prices
Perfect competition
Commodity
A product, such as petroleum or milk, that is considered the same no matter who produces or sells it
Any factor that makes it difficult for a new firm to enter a market
Barrier to entry
A market structure that fails to meet the conditions of perfect competition
Imperfect competition
The expenses a new business must pay before it can begin to produce and sell goods
Start-up costs
A market in which a single seller dominates
Monopoly
A market that runs most efficiently when one large firm supplies all of the output
Natural monopoly
A monopoly created by the government
Government monopoly
A license that gives the inventor of a new product the exclusive right to sell it for a specific period of time
Patent
A contract that gives a single firm the right to sell its goods with in an exclusive market
Franchise
A government issued right to operate a business
License
The division of consumers into groups based on how much they will pay for a good
Price discrimination
The ability of a company to control prices in total market output
Market power
A market structure in which many companies sell products that are similar but not identical
Monopolistic competition
Differentiation
Making a product different from other similar products
A way to attract customers through style, service, or location, but not a lower price
Nonprice competition
A market structure in which a few large firms dominate a market
Oligopoly
A series of competitive price cuts that lowers the market price below the cost of production
Price war
An illegal agreement among firms to divide the market, set prices, or limit production
Collusion
An agreement among firms to change one price for the same good
Price-fixing
Cartel
A formal organization of producers that agreed to coordinate prices and production
Selling a product below cost for a short period of time to drive competitors out of the market
Predatory pricing
Laws that encourage competition in the marketplace
Antitrust laws
Trust
Any legal grouping of companies that discourages competition, similar to a cartel
When two or more companies join to form a single firm
Merger
The removal of some government controls over a market
Deregulation
