Lecture 07 # Competition, Market Effects & Govt Measures Flashcards
One-Shot Revision
What is competition?
Definition: Competition refers to the rivalry among businesses or organizations to attract customers, gain market share, and achieve sustainable profitability.
Importance of competition?
It drives innovation, improves products and services, and can lead to more efficient production and distribution methods.
Types of competition?
Types of Competition:
1. Perfect Competition
2. Monopolistic Competition
3. Oligopoly
4. Monopoly
Define perfect competition
- Perfect Competition: Many small firms sell identical products. No single firm can influence the market price.
Define Monopolistic competition
- Monopolistic Competition: Many firms sell products that are similar but not identical. Each firm has some control over its price.
Define Oligopoly competition
- Oligopoly: A few large firms dominate the market. They may collude to set prices or output levels.
Define Monopoly competition
- Monopoly: A single firm controls the entire market. It sets the price and output levels.
What do you mean by market effects?
Market effects refer to the impact of various factors on the supply, demand, prices, and overall functioning of a market.
What are government measures?
Government measures refer to the actions taken by the government to regulate, control, or support the economy and market activities.
Types of Govt Measures?
Types of Govt Measures:
1. Regulations
2. Subsidies
3. Taxes
4. Price controls
5. Public goods provision
6. Monetary policy
7. Fiscal policy
Define business integration.
Business integration refers to the process by which two or more businesses combine to form a larger business entity.
What is Ansoff Growth Matrix?
The Ansoff Growth Matrix, developed by Professor Igor Ansoff, is a strategic planning tool that outlines four growth strategies for businesses. It helps companies decide their product and market growth strategies.
Ansoff Growth Matrix include how many options, name them?
The Ansoff Growth Matrix includes the following growth options:
1. Market Penetration
2. Market Development
3. Product Development
4. Diversification
What are measures of market competition and concentration?
Measures of Market Competition & Concentration are asfollows,
1. Market concentration ratio.
2. Herfindahl index.
3. Lorenz curve.
4. Gini coefficient.
Define Market Concentration Ratio with example.
1.Market Concentration Ratio: Measures dominance; higher ratio indicates less competition, signaling few firms’ dominance.
For Example: If top 3 firms control 80%, indicating dominance and less competition.
Define Herfindahl Index with example.
2.Herfindahl Index: Calculates concentration; higher values signal potential market power of large firms.
For Example: HI of 0.4 suggests concentration and potential market power.
Define Lorenz Curve with example.
3.Lorenz Curve: Graphical representation showing market share distribution; emphasizes inequalities in competition.
For Example: A curve bending sharply, e.g., top 20% firms hold 80% market share.
What are some of the major effects of monopoly on the market?
Effects of Monopoly
1. Higher Prices
2. Reduced Output
3. Lower Consumer Surplus
4. Resource Allocative Inefficiency
5. Productive Inefficiency
6. Lack of Innovation
7. Barriers to Entry is strong
Define Gini Coefficient with example.
4.Gini Coefficient: Numerical measure from Lorenz Curve; higher values indicate greater market share inequality.
For Example: Gini of 0.7 signifies substantial inequality in market share.
What is competition policy?
Competition policy refers to a set of laws, regulations, and government actions designed to promote competition and prevent anti-competitive practices in the marketplace.
What are some of the major effects of Collusive Practices (Oligopoly) on the market?
Effects of Collusive Practices (Oligopoly)
1. Higher Prices
2. Reduced Output
3. Lower Consumer Surplus
4. Resource Allocative Inefficiency
5. Reduced Innovation
6. Market Rigidity
7. Barriers to Entry is strong
8. Legal and Ethical Issues
What is the main goal of competition policy?
The main goal of competition policy is to enhance consumer welfare by ensuring that markets operate efficiently, businesses compete fairly, and innovation is encouraged.
What are benefits of Competition Policy?
Benefits of Competition Policy
1. Lower Prices
2. Better Quality
3. More Choice
4. Innovation
5. Economic Growth
Define externalitites.
EXTERNALITIES: It refers to the side effects of economic activities on third parties, either positive or negative, not reflected in market prices.
What are objectives of Competition Policy?
Objectives of Competition Policy
1. Promote Market Competition
2. Prevent Monopolies and Oligopolies
3. Prohibit Anti-Competitive Practices
4. Encourage Innovation and Efficiency
5. Protect Consumer Interests
Types of Externalities?
Types of Externalities:
1. Negative
2. Positive
Define Negative Externality.
- Negative Externality:
Definition: Negative externalities occur when an economic activity imposes costs on third parties not directly involved in the activity.
Define Positive Externality.
Positive Externality:
Definition: Positive externalities occur when an economic activity generates benefits for third parties not directly involved in the activity.
Explain negative externalities Intervention?
Negative Externalities Intervention:
Graph: Tax imposed to align social cost with supply, reducing negative externality.
Outcome: Price increases, quantity decreases.
What are government measures to deal with externalities?
GOVT MEASURE TODEAL WITH EXTERNALITIES
1. Negative Externalities Intervention
2. Positive Externalities Intervention
Explain positive externalities Intervention?
Positive Externalities Intervention:
Graph: Subsidy or supply shift aligns social benefit with demand, promoting positive externality.
Outcome: Price decreases, quantity increases.
