Competitive and Concentrated Markets Flashcards
Market structure
The organisation of a market in terms of the number of firms in the market and the ways in which they behave
Price taker
A firm which passively accepts the ruling market price set by market conditions outside its control
Price maker
A firm possessing the power to set the price within the market
Perfect Competition
A market that displays; a large number of buyers and sellers, perfect market information, the ability to buy or sell as much as is desired at the ruling market price, the inability for any individual buyer or seller to influence the market price, a homogeneous product, no barriers to entry (or exit in the long term)
Competitive Market
A market in which firms aim to outdo their rivals, but it does not necessarily meet all the conditions of perfect supply
Concentrated market
A market containing very few firms, in the extreme only one firm
Pure monopoly
When there is only one firm in the market
Monopoly Power
The power of a firm to act as a price maker rather than as a price taker
Imperfect competition
Any market structure lying between the extremes of perfect competition and pure monopoly
Profit maximisation
Occurs when a firm’s total sales revenue is furthest above total costs of production
Sales maximisation
Occurs when sales revenue is maximised
Market share maximisation
Occurs when a firm maximises its percentage share of the market in which it sales its product
Entry barrier
Makes it difficult or impossible for new firms to enter a market
Exit barrier
Makes it difficult or impossible for firms to leave a market
Consumer sovereignty
Through exercising their spending power, consumers collectively determine what is produced in a market. Consumer sovereignty is strongest in a perfectly competitive market
Producer sovereignty
Where producers or firms in a market determine what is produced and what prices are charged
Natural monopoly
- When a country or firm has complete control of a natural resource
- When there is only room in market for one firm benefiting from economies of scale to the full
Patent
A strategic or man made Barrier to market entry caused by government legislation protecting the right of a firm to be the sole producer of a patented good, unless the firm grants royalties for other firms to produce the good
Natural barrier to entry
A barrier to market entry which is not man made
Artificial barrier to entry
A barrier to market entry which is man made
Informative advertising
Provides consumers and producers with useful information about goods or services
Persuasive advertising
Attempts to persuade potential customers that a good or service possesses desirable characteristics that make it worth buying
Saturation advertising
Through flooding the market with information and persuasion about a firm’s product, this functions as a man made barrier to market entry by making it difficult for smaller firms to compete
Product differentiation
Making a product different from other products through product design, the method of producing the product, or through its functionality
Quantity Setter
A firm chooses the quantity of a good to sell, rather than its price. In a monopoly, the market demand curve then dictates the maximum price that can be charged if the firm is to successfully sell its chosen quantity
Concentration Ratio
A ratio which indicates the total market share of a number of leading firms in a market, or the output of these firms as a percentage of total market output
Oligopoly
A market dominated by a few firms
Resource misallocation
When resources are allocated in a way which does not maximise economic welfare
Collusion
Co-operation between firms, for example to fix price. Some forms of collusion might be in the public interest, for example joint research and labour training schemes
Invention
Creates new ideas for product or processes
Innovation
Converts the results of invention into marketable products or services
Price Competition
Reducing the price of a good or service to gain sales by making it more attractive for consumers
Limit pricing
Reducing the price of a good to just above the average cost to deter the entry of new firms into the market. Prices are set at levels which are likely to make it unprofitable for potential entrants who might consider coming into the market
Predatory pricing
Temporarily reducing the price of a good to below average cost to drive smaller firms or new market entrants out of the market
