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Economics- A2 Unit 3 (Micro) > Market Structure > Flashcards

Market Structure Flashcards

0
Q

Barriers to Entry

A

Factors which make it difficult or impossible for firms to enter an industry and compete with existing producers.

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1
Q

Market structure

A

The characteristics of a market which determine the behaviour of the firms within the market.

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2
Q

Barriers to Exit

A

Factors which make it difficult or impossible for firms to cease production and leave an industry.

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3
Q

Brand

A

A name, design, symbol or other feature that distinguishes a product from other similar products and which makes it non- homogenous good.

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4
Q

Concentration Ratio

A

The market share of the largest firms in industry.

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5
Q

Market concentration

A

The degree to which the output of an industry is dominated by its largest producers.

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6
Q

Market Share

A

The proportion of sales in a market taken by a firm it a group of firms.

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7
Q

Homogenous goods

A

Goods made by different firms that are identical.

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8
Q

Non- homogenous goods

A

Goods made by different firms which are similar but not identical e.g. branded goods.

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9
Q

Perfect Knowledge

A

When all buyers in a market are fully informed of prices and quantities for sale, whilst producers have equal access for production techniques.

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10
Q

Perfect Competition

A

A market structure where there are many buyers and sellers, where there is freedom of entry and exit to the market, where there is perfect knowledge and where all firms produce a homogenous product.

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11
Q

Price Taker

A

A firm which has no control over the market price and has to accept the market price if it wants to sell its product.

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12
Q

Break- even

A

The levels of output where total revenue equals total cost.

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13
Q

Shut down point

A

When a firm is indifferent between continuing operations and shutting down temporarily, as it is producing at a level where the revenue its earning is just enough to cover its variable costs.

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14
Q

Monopoly

A

A market structure where one firm supplies all output in the industry without facing competition because of high barriers to entry in the industry.

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15
Q

Price discrimination

A

Charging a different price for the same good or service in different markets.

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16
Q

Product differentiation

A

When a business seeks to distinguish what was essentially the same products from one another by real or illusory means.

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17
Q

Monopolistic Competition

A

A market structure where a large number of small firms produces non- homogenous products and where there are no barriers to entry or exit.

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18
Q

Monopsony

A

When there is only one buyer in the market.

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19
Q

Oligopoly

A

A market dominated by a few large suppliers. The degree of market concentration is high with typically the leading five firms taking over 60% of total market sales. They can be collusive or non- collusive, and there is normally a great deal of interdependence between firms.

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20
Q

Interdependence

A

When the actions of one firm has an effect on its competitors in the market. Interdependence is a common feature of an oligopoly.

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21
Q

Formal collusion

A

When firms make agreements between themselves to restrict competition, typically by reducing output, fixing prices at a high level and keeping potential competition out of the market.

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22
Q

Tacit Collusion

A

When firms collude without making agreements.

23
Q

Cartel

A

A group of firms seeking to maximise joint profits in a market by engaging in price fixing. This can be achieved by controlling market output.

24
Q

Price War

A

When two or more retailers progressively put prices down to try and take each other’s market share (price competition.)

25
Q

Marketing Mix

A

Factors used to attract consumers to a product (non- price competition): Price, Place, Product and Promotion.

26
Q

Game Theory

A

The analysis of situations in which players are interdependent.

27
Q

Prisoner’s Dilemma

A

A game where, given that neither player knows the strategy of the other players, the optimum strategy for each player leads to a worse situation wham if they had known the strategy of the other player and been able to co-ordinate their strategies.

28
Q

Contestable Market

A

A market where there are low barriers to entry and the cost of exit is low.

29
Q

Monopolistic Competiton Characteristics

A
  • A large number of small firms.
  • No barriers to entry/exit.
  • Have some control over price.
  • Differentiated products.
30
Q

Oligopoly Charcteristics

A
  • Barriers to Entry
  • Non- Price Competition
  • Sticky/ Rigid Prices
  • Price Wars
  • Collusion
  • Interdependent firms
31
Q

What factors attract a customer to a product?

A
  • Promotion (adverts, special offers and discounts etc.)
  • Place (internet vs. physical space, quantity, opening times etc.)
  • Product (choice, high quality vs. low quality)
  • Price
32
Q

Examples of barriers to entry…

A
  • Patents
  • Limit Pricing
  • Cost Advantages
  • Advertising and Marketing
  • Research and Development Expenditure
  • Presence of Sunk Costs
  • International Trade Restrictions
33
Q

Examples of barriers to exit…

A
  • Asset Write-Offs
  • Closure Costs (redundancy)
  • Loss of Business Reputation and Consumer Goodwill
  • A Market Downturn
34
Q

Perfect Competition Characteristics

A
  • Many Buyers and Sellers
  • Freedom of Entry and Exit
  • Perfect Knowledge
  • All Firms Produce Homogeneous Goods
35
Q

Positives of Collusion

A
  • Keeps Price Stable

- Rations Scarce Resources, e.g. Oil, which is an finite resource

36
Q

OPEC

A
  • Permament intergovernmental organisation
  • Consists of 12 oil producing and exporting countries- Algeria, Angola, Ecaudor, the Islamic Republic of Iran, Iraq, Kuwait, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, the Socialist People’s Libyan Arab Jamahiriya and Venezuela.
37
Q

Monopoly Characteristics

A
  • One firm (pure monopoly)
  • High Degree of Product Differentiation
  • High Barriers to entry/ exit
38
Q

Problems with Monopolies

A
  • No incentive to develop more efficient technology, as there is no one to compete with.
  • No need for research and development.
  • No incentive to be efficient, or to decrease advantage cost.
  • Do not need to increase investment, as the quality of the good does not need to increase.
39
Q

Conditions for Price Discrimination

A
  • The firms must have some price-setting power.
  • At least two consumer goods with different PED’s.
  • Firms to have sufficient information about consumer preferences.
  • No arbitrage.
40
Q

Problems with Monopoly Diagrams

A
  • Monopolies not always inefficient, monopolies may be desirable on some occasions e.g. natural, but would still need strong regulation.
  • Monopolies do not have to be big, may exist locally.
  • Monopolies do not always aim to profit, as they may want to guard themselves against government intervention.
41
Q

The Market can be Spilt by…

A
  • Time (peak and off-peak)
  • Age (children and elderly)
  • Location
  • Income (students)
42
Q

Firms in an Oligopoly might enter into collusive behaviour because…

A
  • Can stop revenue and price from being unstable.
  • Limits competitive responses, prevent price wars.
  • Guarantees long- term profits.
43
Q

Why do Cartels Fail?

A
  • Incentive to cheat.
  • Recession.
  • The entry of non- cartel firms.
  • Government or other regulatory agencies.
44
Q

Nash Equilibrium

A

When each player chooses the best possible strategy for themselves, given the strategy of the other player, neither has the reason to change their strategy.

45
Q

Benefits to consumers from Price Discrimination

A
  • Results in cheaper prices for some consumers.

- Expands the market.

46
Q

Monopsony

A

When there is only one buys in the market.

47
Q

Characteristics of a Monopsony

A
  • The sole buyer in the market.
  • Sellers cannot sell their products to other firms outside the market, only to the monopsony.
  • They are profit maximisers who aim to minimise their costs, by paying their suppliers the lowest price.
48
Q

Problems with Monopsony’s

A
  • Low wages

- Bad working conditions

49
Q

Monopsony Benefits

A
  • Improved value for money.
  • Producer surplus, may lead to further research and development through investment.
  • Useful counterweight to monopolies.
  • Long term sustainably.
  • The growth of the FairTrade label shows how consumers can have an influence on welfare in the countries producing the product ( feel good factor.)
50
Q

Monopsony Costs

A
  • Low prices drives firms out of the market, which also reduces the amount that’s available for purchase, economic problem, consumers have infinite wants.
  • Reduced profits and wages for firms that remain, workers are also consumers.
  • May force suppliers to change their product.
52
Q

Monopoly Disadvantages

A
  • Abnormal profits means…
    1) Less incentive to be efficient and to develop new products.
    2) Efforts are directed to protect market dominance.
  • Higher prices and lower output for domestic consumers.
  • Monopolies may waste resources by undertaking cross- subsidisation, using profits form one sector to finance losses in another sector.
  • Monopolists may undertake price discrimination to raise producer surplus and reduce consumer surplus.
  • Monopolists do not produce at the most effective point of output.
  • Monopolists can be complacent and develop inefficiencies.
  • Monopolies lead to a misallocation of resources by setting prices above marginal cost, so that price is above the opportunity cost of providing the good.
53
Q

Monopoly Advantages

A
  • Abnormal profits means…
    1) Finance for investment to maintain competitive edge.
    2) Reserves to overcome short-term difficulties and provide funds for research and development.
  • Monopoly power may mean powers to match large overseas organisation.
  • Cross subsidisation may lead to an increased range of goods or services available to the consumer.
  • Price discrimination may raise total revenue to a point, which allows survival of a product or service (it is often said that economy class flights are funded by those flying business and first class.)
  • Monopolists can take advantage of economies of scale, which means that average costs may still be lower than the most efficient average of a small competitive firm.
  • There are few permanent monopolies. Super- normal profits act as an incentive to break down the monopoly through a process of creative destruction, i.e. undermining the monopoly through product development and innovation.
  • Monopolists avoid undesirable duplication of services and therefore a misallocation of resources.
54
Q

How do you make markets more contestable?

A
  • De- regulation
  • Tougher competition
  • The changing nature of technology
55
Q

Nationalism

A

Transfer of a firms ownership from the private individuals to the state.

Economics- A2 Unit 3 (Micro) (6 decks)

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