Market Structures Flashcards
What are the 5 types of Market Structures?
Monopoly
Perfect Competition
Monopsony
Oligopoly
Monopolistic competition
What does N-Firm Concentration Ratio show?
How much market share N largest firms have
What is bounded rationality
Limited mental processing abilities
What are the three assumptions of a monopoly
Only one firm in the market
Profit maximisers
High barriers to entry
What is a pure and legal monopoly?
Pure has 100% market share
Legal has more than 25%
What are the 4 types of barriers to entry
Sunken costs
Legal barriers
Economics of scale
Brand loyalty
What are legal barriers?
Patents
Copyright
Trademarks
What are sunk costs?
Costs you can’t get back. For example, advertising or specialised machinery.
What are the six types of internal economies of scale
Richards mum flies passed the moon:
Risk-bearing, managerial, financial, purchasing, technical, marketing
What is an incumbent firm?
A firm already in the market
What are the four measures of efficiency?
Productive
Allocative
Dynamic
X efficiency
What is productive efficiency?
When average cost is at its lowest
When mc = ac
What is allocative efficiency?
When welfare is maximised
When MC = AR
What is a natural monopoly?
When it is naturally most efficient for one firm to be a monopoly
Why do natural monopolies exist?
High sunk costs and huge economies of scale
What is price discrimination?
When firms charge consumers different prices for the same good
3 conditions of price discrimination
Market power
Information
Limit reselling
What does Market power mean
A firm has enough market share to change its prices without losing customers
Why do firms need information to price discriminate
They need to know who they can discriminate
What are the features of a perfectly competitive market?
Many small buyers
No barriers to entry
Homogenous goods - (goods that are the same)
Perfect information
What is monopolistic competition
Many small buyers and sellers
LOW barriers to entry
DIFFERENTIATED products
What is a differentiated good?
Similar but slightly different
What happens to firms in the long run in monopolistic competition?
New firms will enter and steal customers which will lead to a decrease in demand and thus lead to a decrease in mr and ar until where ar just touches ac
Features of an oligopoly
Few large sellers
High barriers
Differentiated goods
Interdependence
What is interdependence
One firms actions will directly affect another firm
What is overt collusion
A formal agreement between firms to collude
