Market structures Flashcards
Barrier to entry
any obstacle that prevents a new firm entering market
4 types of barriers to entry
Legal
Technical
Strategic
Brand loyalty
examples of legal barriers to entry
Patents
licenses/Permits
Red tape
Standards and regulations
Insurance
examples of technical barriers to entry
start up costs
sunk costs
EoS
natural monopoly
examples of strategic barriers to entry
Predatory pricing
limit pricing
Heavy advertising
Barrier to exit
Any obstacle that prevents a firm from leaving a market
Examples of barrier to exit
under valuation of assets- getting a price much lower so holding on for a while
higher redundancy costs
penalties for leaving contracts early- eg. supplier, rent, electricity
high sunk costs
Allocative efficiency
AR=MC
resources follow consumer demand
society surplus is maximised
net social benefit is maximised
Productive efficiency
operating at lowest point on their AC curve, full exploitation of Eos
X-efficiency
minimising waste
production on the AC curve
dynamic efficiency
reinvestment of LR supernormal profit back into the business in form of innovation, R&D
what is static efficiency
occurs at one specific production point- allocative, productive, X
