Competitive and Concentrated Markets Flashcards
Monopoly
Occurs where one firm dominates the market with at least 25% market share
Monopoly Advantages
Economies of scale
Dynamic efficiency with better processes
Use retained profits in research and development
Natural monopolies occur where it is too expensive for other firms to provide the same product
Monopoly Disadvantages
High barriers to entry Charge high prices Exploit consumer Productively inefficient Allocatively inefficient X-inefficient Can reduce choice and quality as no competition
Oligopoly
Few firms dominate the market
Oligopoly Advantages
Innovate to create competitive advantage
Reinvest supernormal profits
Dynamic efficiency
Competitive so lower prices and create better quality
Oligopoly Disadvantages
Reduce choice as high concentration ratio
Barriers to entry exist
Productively efficient
Monopolistic Competition
Large number of firms in the market selling differentiated products
Monopolistic Competition Features
Non-price competition
Firms have some interdependence
Price takers barriers to entry very low
Small degree of monopoly power with differentiated products
Perfect Competition Features
Large number of producers and consumers
Identical products
Freedom of entry and exit
Perfect knowledge
Concentration Ratio
The number of firms that dominate the market
Product Differentiation
Firms make product different to the competition
Adapting the product
Advertising and branding
Unique selling point
Objectives Of Firms
Profit maximisation Sales maximisation Revenue maximisation Profit satisficing Survival Growth Increased market share
Market Power
Ability of a firm to set price above marginal cost
Effects Of Competition
Lower prices Greater quality and choice High level of customer service Expenditure on research and development Diversification
