Competition and Market Power:

Question 1

What is a monopoly?

Answer 1

a sole supplier with no competition (price maker)

Question 2

Monopoly power?

Answer 2

the market share is large enough to influence the market e.g. Tesco with 25%

Question 3

What is a natural monopoly?

Answer 3

When a monopoly occurs because too expensive or wasteful, usually in infrastructure

Question 4

What assumptions are there in perfect competition?

Answer 4

many sellers, buyers, no barriers, perfect knowledge, no externalities, homogenous products and normal profits.

Question 5

Limitations to perfect competition?

Answer 5

Unrealistic, no R+D, no economies of scale, only theoretical

Question 6

what is a duopoly?

Answer 6

When 2 firms dominate market, high entry barriers, rely on brand loyalty.

Question 7

give an example of a duopoly

Answer 7

Airbus and Boeing, 99% of global orders

Question 8

give an example of an oligopoly?

Answer 8

Insulin (Sanofi, Eli Lilly and Novo Nordisk. 1 vile is $285.

Question 9

How long do patents last for?

Answer 9

20 years

Question 10

what is contestability and who created it?

Answer 10

William Baumol and when firms have perfect entry and exit to market with low sunk costs so consumers are protected because prices are low.

Question 11

give 3 examples of strategic Entry deterrents?

Answer 11

Hostile takeovers, product differentiation, predatory pricing

Question 12

Give an example of a legal barrier to entry

Answer 12

patents/ trademarks

Question 13

Give 2 examples of natural barriers to entry

Answer 13

Natural monopoly, internal economies of scale

Question 14

Give 3 examples of an internal economy of scale

Answer 14

Technical, marketing, risk bearing, managerial, purchasing, financial

Question 15

Give 4 examples of artificial barriers to entry

Answer 15

product differentiation, branding, spread risk in R+D, vertical integration,

Question 16

What is predatory pricing?

Answer 16

Setting prices below that off profit with the intention of driving other firms out of business (Illegal in UK)

Question 17

What is X-inefficiency?

Answer 17

A waste of resources and little incentive to control costs due to to lack of competition/ low PED

Question 18

how do you measure concentration ratio?

Answer 18

All firms’ total sales/ industry’s total sales x 100

Question 19

what is interdependence?

Answer 19

When the actions of each big firm will have impact on markets and rivals (damaged by price wars)

Question 20

what is Tacit collusion?

Answer 20

Illegal- large firms have monopoly power and price leadership where others follow.

Question 21

what is overt collusion?

Answer 21

Legal if firms openly agree to action if in public interest e.g. transport and a multi-operator ticket

Question 22

What is a consumer surplus?

Answer 22

Where consumers are willing to pay more for a product which can lead to price discrimination