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microeconomics > Market Structures > Flashcards

Market Structures Flashcards

1
Q

Three characteristics of a market structure

A

The degree of competition in the industry

The no. and behaviour of firms and buyers in the industry

Market prices and quantities in the industry

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2
Q

Contestibility

A

Ease with which new firms can enter and leave market (barriers to entry lower this)

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3
Q

Impact of contestibility

A

Treat of competition so lower prices

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4
Q

Price discrimination

A

How to maximise profits by dividing groups into inelastic and elastic PED

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5
Q

Price discrimination benefits for consumers

A

Lower p for young uns and oldies
Discount fare for off peak times: there’s more choice
Less overcrowding
Can reinvest extra profit into eg customer service

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6
Q

Price discrimination benefits for firms

A

Up profits, up sales as some r cheaper, and so up image and become more popular

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7
Q

Price discrimination negatives for consumers

A

Higher railfare for adults, could use profits elsewhere eg shareholders or wages or advertising, pay more in inelastic group

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8
Q

Monopolistic competition (hairdressers)

A 
Only supernormal in SR
Large no of buyers and sellers
Non-homogenous goods (so some non price comp)
Low entry and exit costs
Price maker (but limited by comp)
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9
Q

Monopolistic comp diagram

A

MORE ELASTIC REV CURVES and supernormal in SR

Supernormal profit eroded by newcomers so normal profit in LR

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10
Q

Monopolistic comp efficiency

A

Prod efficiency: no (not producing on ACs lowest point)
Allocative efficiency: no (p does not equal mc)
Dynamic: no, no profit to invest

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11
Q

Eval monopolistic comp

A

Asymmetric info so potential entrants unaware of supernormal profit, firms slightly different sizes so slightly different cost curves so some can maintain profit longer, unlikely to be stable normal for long as constantly changing market

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12
Q

Monopsony

A

Only 1 buyer in the market, so can prevent new firms entering
Eg gov for teachers and NHS
Pay suppliers lowest possible so profit max
Produce where MC=AR/D

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13
Q

Effect of monopsony on firms

A

Up profits as lower costs of prod, so up R and D and returns for shareholders, purchasing eos

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14
Q

Effect of monopsony on consumers

A

If lower costs passed on then lower p, benefit from up R and D

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15
Q

Perfect comp

A 
No supernormal profit in LR
Many firms
Homogenous gds
Perfect knowledge
No barriers to entry and exit
Price taker
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16
Q

Perfect comp efficiency

A

Prod: yes, profit maximisers, but only in LR as the producing at bottom of AC curve
Allocative: yes as producing where p = mc
Dynamic: no as no profit to invest and as perfect knowledge another firm would just take ur invention so no comp advantage gained from investment or R and D

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17
Q

Oligopoly- supermarkets

A 
Supernormal in SR and LR
Few dominant firms
Differentiated products
V important non p comp
High barriers
Price maker but interdependent
18
Q

N firm conc ratios

A

Total sales of n firm/ total size of market

X 100

19
Q

Overt/ open collusion

A

A cartel (formal agreement to limit comp by eg price fixing), members behave like a monopoly eg OPEC, firms need to have similar costs and products and high barriers to entry to be in a cartel

20
Q

Positives of collusion

A

Profits (gain from market manipulation), certainty and stability, no p wars, protected from threat

21
Q

Incentive to compete

A

Illegal to collude, risk of collusion like betrayal, might have strong business model, outsmart opponents, get a portion of rivals share and profit

22
Q

Tacit/ informal collusion

A

Eg price leadership (follow dominant firms p so no p wars), or follow a barometric firm (gd at predictions) or unwritten conduct (no poaching)

23
Q

Price wars

A

Gds have weak brands and consumers p concious, eg Tesco in 2017

24
Q

Predatory pricing

A

Established firm set such a low p to drive new entrants out of market as they can’t make profit, and then firm raises p back up (illegal)

25
Q

Limit pricing

A

Firms set a low p to prevent new entrants but they’re only making normal profit now

26
Q

Non p comp: advertising

A

Can up awareness = up sales and market share so in LR up profits and make D inelastic

27
Q

Non p comp: loyalty cards

A

Encourage repeat purchases by rewarding ppl and gives firms data on habits so can up sales

28
Q

Non p comp: branding and quality

A

Ppl will trust brand coz of gd quality, quality ups brand loyalty and gives gd rep so ppl trust new products

29
Q

Non p comp: prod development

A

Invest in R and D to get comp advantage- if ur 1st to release a new product then up sales

30
Q

Non p comp eval

A

Expensive
No guarantee of success
Only large firms able to do lots of adverts and R and D

31
Q

Oligopoly efficiency

A

Prod: no
Allocative: no
Dynamic: yes, though may just share supernormal profit with shareholders

Can exploit eos so lower costs

32
Q

Monopoly

A 
Supernormal profit always
1 firm
Limited product type 
V high barriers to entry
Price maker
Profit maximising
33
Q

Natural monopoly

A

A decreasing cost industry, continuous eos

Eg national rail

Not prod or allocative efficient as no min AC curve

34
Q

Effect of monopoly on firms

A

Huge profits
Can finance investment and reserves (gd for covid)
Maximise eos
Up wages
BUT no profit max of x inefficient, profit satisficing, in LR lack of competition means lazy and inefficient

35
Q

Effect of monopoly on consumers

A

Eos = ⬆️ CS, dynamic efficiency ups quality
Firms may produce larger range of gds if cross subsidisation
But lack of comp could up p and down quality
Less choice as only 1 firm
Eos = down costs of prod which could be passed on as down p

36
Q

Eval monopolies

A

V rarely permanent

37
Q

Efficiency of monopoly

A

Prod: no not producing at MC=AC
Allocative: no price exceeds MC
Dynamic: yes coz supernormal profits (but no comp could mean no incentive to invest)

38
Q

Purely contestible market

A

No barriers to entry and perfect knowledge and low product loyalty and no sunk costs (FCs that can’t be recovered eg advertising)- unlikely as there are always sunk costs

39
Q

In contestable markets…

A

Constant threat of comp, so charge a low p and gain less profit (normal) so other firms don’t want to join, so firms only able to produce whet AC=AR

40
Q

Contestibility efficiency

A

Prod and allocative: yes as have to be on lowest point of AC curve so newbies can’t undercut p, so MC=AC

microeconomics (10 decks)

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