Market Structures Flashcards
Predatory Pricing
Setting the price level below costs to drive out the competition.
Limit Pricing
Setting the price at a low enough level to discourage new entrants into the market.
Non-price Competition
This can include:
-Marketing
-Packaging
-Loyalty bonuses
Concentration Ratio
The market share controlled by the ‘n’ largest firms.
Perfect Competition
Characteristics:
-Many small firms
-Homogeneous Products
-Perfect knowledge
-No barriers to entry/exit
-Price taker
Monopolistic Competition
Characteristics:
-Many small firms
-Similar products (slight difference)
-Imperfect knowledge
-low barriers to entry/exit
-Slight local price setting power
Oligopoly
Characteristics:
- A few large firms
-Distinct product characteristics
-Imperfect knowledge
-High barriers to entry/exit
-Significant price setting powers
Monopoly
Characteristics:
-One dominating firm
-Unique product
-Imperfect knowledge
-High barriers to entry/exit
-Price maker
Overt and Tacit Collusion
Overt collusion is where firms openly fix prices or any other variable.
Tacit collusion is where firms cooperate to fix prices without a
spoken agreement.
Productive Efficiency
This occurs at the lowest cost per unit of output (minimizing costs).
MC=AC
Allocative Efficiency
Costs of production and the demands of the consumer are taken into account so that the price of making the unit is equal to the cost.
P=MC
Dynamic Efficiency
This is how technological changes over time will increase the productive potential of a firm.
X-inefficiency
This occurs when a firm operates above its AC curve, meaning costs aren’t as low as they could be.
