Market Structure Flashcards
What is a market?
A place where two or more parties can meet to engage in an economic transaction.
What is market power?
The ability of a firm within a market to profitably charge prices above the competitive level for a sustained time
What is a turbulent market?
In turbulent markets, top-selling company of a year may not dominate the next year
in less turbulent markets, the same companies dominate year after year with very little movement up and down in rank order
Give 6 characteristics of perfect competition.
- many buyers and sellers with small size
- little differentiation between products
- perfect information for buyers and sellers
- no transaction/switching costs in market
- free market entry and exit
- equal access to technologies
Give 4 requirements for a company to be a monopoly.
- Operate under large economics of scale
- Huge capital
- No strong substitute/alternative
- Technological superiority and ability to control resources
Give 3 advantages of a monopoly
Economies of Scale, Price Stability, and R&D Spending
Give 3 disadvantages of a monopoly
Price Fixing, Declining Product Quality, Loss of Innovation and Inflation
What is an oligopoly?
It consists of a select few companies that combined, exert significant influence over a market
How is it easier to become a monopoly in the Digital Economy? (5 reasons)
- Network effects
- High switch costs
- Economies of Scale
- AI & Data Analytics enable superior quality of goods
- Hard to regulate due to unclear market definition
Give 3 differences between digital business and the traditional market.
- Difficultly to find substitutes
- Digital market definition is complicated by zero-pricing
- Broader market definitions due to converging products
Give the purpose of Porter’s Five Forces Model.
- gives a general view of the firm, its competitors and the environment
- helps to determine the competitive landscape that a company faces and to understand how a company is positioned within it
State the Five Forces in Porter’s Model.
- Competition in the Industry
- Potential of New Entrants into an Industry
- Bargaining Power of Suppliers
- Bargaining Power of Customers
- Threat of Substitutes
