Market structure Flashcards
Types of markets ?
International
national
local
regional
Example of international market ?
Oil market
Exmaple of national market ?
ITV vs BBC
Example of regional market ?
Mace vs Spar
Example of local market ?
Taxi firms
Types of market structures ?
- Perfect competition
- Imperfect competition
- Oligopoly
- Monopoly
What is a perfect competition market ?
This is a highly competitive market
intense level of price competition
all firms have to use the same prices
large number of independent profit maximisation firms
firms and consumers have perfect knowledge of the economic conditions
consumers and each firm is small in relation to the market
factors of production have perfect mobility
price taking firms
freedom of entry
What is imperfect competition ?
Large number of firms
relative intensity of price compeition is moderated by slightly differented products
price makers because they sell differentiated prodcuts
freedom of entry
in the long run normal profits will be earned
What is oligopoly ?
small number of firms competing against each other
large in relation to market
focuses on non price competition
barriers to entry
High degree of price stability e.g. cinema prices
interdependent
game theory
What is a monopoly ?
Only one firm in the market no close substitiutes ito the goods sold weak competition in price and non price price maker the one firm is the industry
What is market power ?
The capacity of a firm to influence the market price of a good or service
What is market concentration ?
The extent to which a market is dominated by a small number of firms
What is supernormal profit?
A profit that exceeds the minimum amount a firm must earn to induce it to remain in the industry
What type of profit is present in the short run of perfectly competitive firms ?
Supernormal profit
What type of profit is present in the long run of perfectly competitive firms ?
Normal profit
Sources of market power ?
product availability
product differentiation
absence / scarcity of firm
customer preferences
When does profit maximisation occur ?
when marginal cost equals marginal revenue
Types of monopoly ?
- Pure
- Legal
- Natural
What is a pure monopoly ?
A market structure in which there is a sole supplier of a good or service that has no close substitutes and for whish there are barriers to entry into the industry
What is a legal monopoly ?
A legal monopoly arises in the UK when a firm enjoys a market share of 25 percent or more
What is a natural monopoly ?
Arises when a single firm is the most efficient structure fir the production of a particular good or service
Sources of monopoly ?
Patents
Trade marks
Copyrights
Designs
What is a patent ?
Rights in production, sales, use and importing
can last up to 20 years
What is a trade mark ?
Distinguishes a company from competitors
What is a copyright ?
prevents someone from copying music,books,photos
What is a design ?
prevents the copying of a 3 dimensional product
lasts up to 15 years
it is difficult for new firms ot enter an oligopoly. What barrieres are there ?
- The size of incumbent firms - because of the present firms being large in the market e.g. apple, samsung and nokia. Organic growth is key here. E/g Apple iphone
- the production and sales strategies of incumbent firms -
- branding - firms are dominant in the market, sometimes the branding is so successful that the branding becomes the product
What is a deadweight loss ?
This arises in the case of monopoly when society is denied output it would prefer to see produced and consumed
What is price discrimination ?
This is charging customers different prices for the same product. E.g. student discounts
What is producer surplus ?
This is the total amount suppliers in a market receive above that necessary to induce them to supply the goods in question
What is a cartel ?
A group of firms or producers that agree to act as if they were a single firm or producer e.g. with regard to pricing and output decisions
What is game theory ?
A powerful tool that can be used to explore a widr variety of economic and non-economic relationships
What is market failure ?
This arises where the market either fails to pricide certain goods or fauks to provide them at their optimal ir most desirable level
What is a monopsony ?
This arises where there is a dominant buyer in a market
What is nash equilibrium ?
A situation where economic agents optimise their actions, given the choices made by other parties
What is dominant strategy ?
A course of actuon that a player in a game follows regardless of the decisions of other players