Market structures Flashcards
What are the different market structures?
Perfect Competition Monopoly Natural Monopoly Monopolistic Competition Oligopoly Contestable Market
What are the barriers to entry?
High set up costs Economies of Scale Legal barriers Brand loyalty Predatory loyalty
Explain high set up costs as a barrier to entry
High set-up costs deter initial market entry. Many of these costs are sunk costs. Sunk costs are those that cannot be recovered when a firm leaves a market, and include marketing and advertising costs and other fixed costs
What’s the result of barriers to entry?
Makes market less contestable - people don’t wanna join the market bc its too much effort
What do barriers to entry do?
Block potential entrants from entering a market profitably
Explain economies of scale as a barrier to entry
Lower LRAC for incumbent firms compared to new entrants
Explain legal barriers as a barrier to entry
Insurance costs Must meet regulations Licence to operate Patents to protect new ideas Planning permission
Explain a strong brand as a barrier to entry
This creates loyalty, ‘locks in’ existing customers and deters entry
Explain predatory pricing as a barrier to entry
Low prices prevent entry of new firms - benefits customers in short run
What are the long run and short run effects of predatory pricing?
SR - cheap for customers
LR - firm aims for monopoly and raise prices when control whole market = bad for customers
What is a concerntration ratio?
the proportion (%) of the total market shared between the nth largest firms
State and explain 2 barriers to entry for the television market
Legal barriers - what to show on tv, liscencing, operating
How do barriers to entry vary between markets?
Pefect competition - There are none
Monopoly market - Total barriers, no one new can enter
Economies of scale - high barriers due to benefits of saving on LRAC
What is perfect competition?
the unrealistic situation prevailing in a market in which buyers and sellers are so numerous and well informed that all elements of monopoly are absent and the market price of a commodity is beyond the control of individual buyers and sellers.
What are 5 necessary conditions in perfect competition?
There are infinite suppliers and consumers =
Both have perfect information
Products are identical and are perfect substitutes for each other
There are no barriers to entry or exit
All firms are profit maximisers
