Microseconomics Booklet Five

Question 1

Cartel

Answer 1

When colluding firms act together, effectively behaving as if they were one firm (usually to exert monopoly power)

Question 2

Collusion

Answer 2

When independent firms agree to jointly fix output or prices rather than competing

Question 3

Competition policy

Answer 3

Government policy aimed at reducing monopoly power in order to protect consumers’ interests

Question 4

Concentration ratio

Answer 4

The proportion of sales in a market accruing to a given number of leading firms

Question 5

Contracting out (contractualisatin)

Answer 5

The process by which a state-owned firm hires a private firm to provide ancillary services

Question 6

Customer inertia

Answer 6

The tendency of consumers to remain with one provider when they may be a better value option available

Question 7

De-regulation

Answer 7

The process of removing regulations

Question 8

Dominant strategy

Answer 8

In game theory, the most rewarding option for a “player” to pursue

Question 9

Hit-and-run entry

Answer 9

When firms enter a market in pursuit of economic profit and then leave the market once it has been exhausted

Question 10

First degree price discrimination

Answer 10

Charging each individual the maximum that they are prepared to pay for a product

Question 11

Limit pricing

Answer 11

Charging a price that is so low that there is no incentive for firms to enter the market as it would be unprofitable to do so

Question 12

Market share

Answer 12

The proportion sales in a market accruing to a particular firm

Question 13

Monopolistic competition

Answer 13

A highly competitive market structure with many firms who are able to differentiate their product

Question 14

Nash equilibrium

Answer 14

An outcome in a game where no player can improve their pay-off simply by changing their own decisions

Question 15

Nationalisation

Answer 15

The process by which a firm or industry is taken into state ownership

Question 16

Natural monopoly

Answer 16

An industry with very high fixed costs, which leads itself ideally to a single firm, so that average costs can be spread

Question 17

Oligopoly

Answer 17

A market dominated by a few firms between whom there is conscious interdependence

Question 18

Perfect competition

Answer 18

A market with many buyers and sellers of a homogeneous product, freedom of entry and exit and perfect knowledge

Question 19

Predatory pricing

Answer 19

Charging a price that is so low that rival firms cannot compete and force to leave the market

Question 20

Price fixing

Answer 20

An agreement between rival firms to maintain prices that are artificially low or high

Question 21

(Barometric) Price leadership

Answer 21

Firms follow the price set by the market leader without the need for an explicit agreement

Question 22

Price discrimination

Answer 22

The practice of charging different consumers different prices for the same good or service

Question 23

Privatisation (de-nationalisation)

Answer 23

The process by which a firm or industry is transferred from state ownership into private ownership

Question 24

Pure monopoly

Answer 24

A market with literally just one seller with 100% market share

Question 25

Regulatory capture

Answer 25

The tendency of the regulator in an industry to sympathise/side with producers rather than the consumers they are supposed to protect, causing government failure

Question 26

Second-degree price discrimination

Answer 26

Selling off surplus capacity at a lower price or at a discount for buying in greater quantities

Question 27

Sales value

Answer 27

The monetary value of a firm’s sales in a given period of time

Question 28

Sales volume

Answer 28

The number of units of output that a firm sells in a given time period

Question 29

Third-degree price discrimination

Answer 29

Dividing a market into different sub-markets and charging different groups of people (with different willingness to lay) different prices

Question 30

Working monopoly (competition and Markets Authority definition)

Answer 30

A firm with more than 25% market share

Question 31

Working monopoly (competition and Markets Authority definition)

Answer 31

A firm with more than 25% market share