Market Structures

Question 1

Market Sructure Spectrum

Answer 1

Market Structure: How a market is organised

Question 2

Features of a Market Structure

Answer 2

• No. of firms in Market: More Firms = More Competitive, includes competition from abroas
• Amount of Product Differentiation: More differentiated = Less competitive. Perfect competition has homogenous products. Products* can be differentiated using price, branding & quality*, affects cross price EoD
• Ease of Entry: No. & degree of the barriers to entry. BtE designed to prevent new firms entering profitably, increasing producer surplus. Higher BtE = less competitive

Question 3

Barriers to Entry

Answer 3

Types of Barriers to Entry:
- Structural: Arise due to differences in production costs
- Strategic: Firms use different pricing policies (e.g undercutting)
- Statutory: Patents protect a franchise (e.g TV broadcasting licence)

Examples of Barriers to Entry:
- Economies of Scale
- Brand Loyalty: Makes demand more inelastic, hard for new firms to gain consumer loyalty when one brand name is already strong
- Controlling the Important Technologies
- Strong Reputation
- Backwards Vertical Integration: Control supply & price they pay suppliers. Hard for new firms to compete on price