Competitive market process (Micro) Flashcards
How firms compete
1
Q
What is price competition?
A
Reducing prices to make the product more attractive to consumers
2
Q
What is dynamic efficiency?
A
Improving productive efficiency over time (through machinery or innovation)
3
Q
What is a price war?
A
Persistent cuts in prices, undercutting one another to win market share.
4
Q
What is a contestable market?
A
A market with freedom of entry and exit
5
Q
What is the problem with contestable markets?
A
Hit and run competition
6
Q
Features of a non contestable market?
A
Freedom of entry, no sink costs, perfect information, prices = marginal cost
