market structures Flashcards
what are the features of perfect competition
- there are low/no barriers to entry and exit
- firms are price makers not takers
- products are homogeneous
- there is perfect information between buyers and sellers
- no firm has substantial market share
what is producer and consumer sovereignty
producer sovereignty is where the producer has full control over what is produced and how much is produced.
consumer sovereignty is where consumers have full control over what is produced and what price for how much.
what is predatory and limit pricing
predatory pricing is where one firm in a market cuts their price to attract more customers increasing their demand and pushing out competition. they will then gradually increase their price.
limit pricing is where a firm will sacrifice its supernormal profits to make normal profits. the normal profits will deter new firms from entering the market
collusion
collusions where two or more firms work together sometimes merging together for mutual benefit. this allows them to gain market share within the market whilst setting price
give examples of oligopoly markets
retail coffee shops
investment banks
airlines
PC companies
sports brands
give examples of monopoly markets
diamond market
agricultural markets
e-commerce market
railway
explain the short run and long run diagrams in perfect competition
in the short run all firms aim to profit maximise. this is where MR=MC. this acts as an incentive for new firms to enter the market as they feel they are missing out on profits. this shifts the market ruling price down meaning firms are now making normal profits where AR =AC. the new market ruling price means the supply curve shifts to the right as there are more firms supplying this homogenous product.
what are the CMA
the competition and markets authority prevent collusion and predatory pricing. they also prevent firms from having from having too much market power via merging. Tesco weren’t allowed to merge with Safeway but morrisons were.
