market structures Flashcards
perfect competition def
The opposite of monopoly; the competition is at its greatest level.
price taker
a company that must accept the prevailing prices in the market of its products, its own transactions being unable to affect the market price.
barrier to entry
The existence of high start-up costs or other obstacles that prevent new competitors from easily entering an industry or area of business.
break even price
The amount of money for which an asset must be sold to cover the costs of acquiring and owning it.
shut down price
The price of a product below which it is cheaper for a company not to make the product than to continue to sell it.
normal profit
the difference between a firm’s total revenue and total cost is equal to zero.
economic profit
the monetary costs and opportunity costs a firm pays and the revenue a firm receives
productive efficiency
concerned with producing goods and services with the optimal combination of inputs to produce maximum output for the minimum cost. To be productively efficient means the economy must be producing on its production possibility frontier.
allocative efficiency
Allocative efficiency is a state of the economy in which production represents consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing.
monopoly def
a person or business that has a monopoly.
characteristics of a monopoly
- only one producer
- high barrier to entry
- very high market power
- no subsidies
- maximize profit in the short run
- D=P=AR
why AR not equal MR
because an increase in production for a monopolist has 2 opposite effect on total revenue: quantity effect and price effect
price discrimination
the action of selling the same product at different prices to different buyers, in order to maximize sales and profits.
disadvantages of a monopoly
- high price
- sell lower quantity
- productive and allocative inefficient
- diseconomies of scale
- low quality
natural monopolies
A natural monopoly is a monopoly that exists because the cost of producing the product (i.e., a good or a service) is lower due to economies of scale if there is just a single producer than if there are several competing producers.
preventing monopoly
- breaking in smaller companies
- public ownership
- price regulation
quantity effect
In economics, the Total Revenue Test is a means for determining whether demand is elastic or inelastic. If an increase in price causes an increase in total revenue, then demand can be said to be inelastic, since the increase in price does not have a large impacton quantity demanded.
price effect
The impact that a change in value has on the consumer demand for a product or service in the market. The price effect can also refer to the impact that an event has on something’s price. The price effect consists of the substitution effect and the income effect.
perfect price discrimination
when the seller will charge each customer the maximum price that he or she is willing to pay.
antitrust policies
consisting of laws to protect trade and commerce from unlawful restraints and monopolies or unfair business practices.
characteristic of monopolistic competition
- many producers competing
- different product
- free entry/exit
name the four types of market structures
- monopoly
- monopolistic competition
- oligopoly
- perfect competion
monopolistic competition vs perfect competition
- distinct product
product differentiation
In economics and marketing, product differentiation (or simply differentiation) is the process of distinguishing a product or service from others, to make it more attractive to a particular target market. This involves differentiating it from competitors’ products as well as a firm’s own products.
consequences of product differentiation
- competition among sellers
- benefit of diversity for consumers
- style or type
- product development
- location
- quality
- customers serve
- advertising
- branding
non price competition
advertising and marketing strategies to increase demand and develop brand loyalty
advertising
strategy to promote or sell something
branding
creating a symbol of identification for a product
excess capacity problem
a firm can produce 100 but the market is asking for 50, there is a excess capacity problem where the firm produce less than what is achievable
HHI index
measures the quantity of firms in a market
duopoly
when two suppliers dominate a market
collusion
is a non-competitive agreement between rivals that attempts to disrupt the market’s equilibrium.
cartel
A group of producers in an industry that join together to regulate supply (or fix prices)
incentive to cheat
when a company meh…agrees to disagree and decides to be sneaky passing through an agreement.
non-cooperative behavior
take decisions idependently
game theory
the theory of social situations,
payoff
Benefits received
payoff matrix
A matrix which gives the possible outcome of a two-person zero-sum game when player A has possible moves and player B moves. The analysis of the matrix in order to determine optimal strategies is the aim of game theory.
strategy
a plan of action or policy designed to achieve a major or overall aim.
dominant strategy
dominant strategy exists for one player in a game, that player will play that strategy in each of the game’s Nash equilibria. If both players have a strictly dominant strategy, the game has only one unique Nash equilibrium.
nash equilibrium
where the optimal outcome of a game is one where no player has an incentive to deviate from his or her chosen strategy after considering an opponent’s choice.
tit for tat strategy
When faced with a prisoner’s dilemma-like scenario, an individual will cooperate when the other member has an immediate history of cooperating and will default when the counterparty previously defaulted.
tacit collusion
occurs where firms undergo actions that are likely to minimise a response from another firm, e.g. avoiding the opportunity to price cut an opposition. Put another way, two firms agree to play a certain strategy without explicitly saying so.
overt collusion
A formal, usually secret, collusion agreement among competing firms (mostly oligopolistic firms) in an industry designed to control the market, raise the market price, and otherwise act like a monopoly.
kinked demand curve
Economic theory regarding oligopoly and monopolistic competition. When it was created, the idea fundamentally challenged classical economic tenets such as efficient markets and rapidly changing prices, ideas that underlie basic supply and demand models.
interdependent firms
firms must take into account the likely reactions of their rivals to any change in price, output or forms of non-price competition.
