Microseconomics Booklet Five Flashcards
Cartel
When colluding firms act together, effectively behaving as if they were one firm (usually to exert monopoly power)
Collusion
When independent firms agree to jointly fix output or prices rather than competing
Competition policy
Government policy aimed at reducing monopoly power in order to protect consumers’ interests
Concentration ratio
The proportion of sales in a market accruing to a given number of leading firms
Contracting out (contractualisatin)
The process by which a state-owned firm hires a private firm to provide ancillary services
Customer inertia
The tendency of consumers to remain with one provider when they may be a better value option available
De-regulation
The process of removing regulations
Dominant strategy
In game theory, the most rewarding option for a “player” to pursue
Hit-and-run entry
When firms enter a market in pursuit of economic profit and then leave the market once it has been exhausted
First degree price discrimination
Charging each individual the maximum that they are prepared to pay for a product
Limit pricing
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
Market share
The proportion sales in a market accruing to a particular firm
Monopolistic competition
A highly competitive market structure with many firms who are able to differentiate their product
Nash equilibrium
An outcome in a game where no player can improve their pay-off simply by changing their own decisions
Nationalisation
The process by which a firm or industry is taken into state ownership
Natural monopoly
An industry with very high fixed costs, which leads itself ideally to a single firm, so that average costs can be spread
Oligopoly
A market dominated by a few firms between whom there is conscious interdependence
Perfect competition
A market with many buyers and sellers of a homogeneous product, freedom of entry and exit and perfect knowledge
Predatory pricing
Charging a price that is so low that rival firms cannot compete and force to leave the market
Price fixing
An agreement between rival firms to maintain prices that are artificially low or high
(Barometric) Price leadership
Firms follow the price set by the market leader without the need for an explicit agreement
Price discrimination
The practice of charging different consumers different prices for the same good or service
Privatisation (de-nationalisation)
The process by which a firm or industry is transferred from state ownership into private ownership
Pure monopoly
A market with literally just one seller with 100% market share
Regulatory capture
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
Second-degree price discrimination
Selling off surplus capacity at a lower price or at a discount for buying in greater quantities
Sales value
The monetary value of a firm’s sales in a given period of time
Sales volume
The number of units of output that a firm sells in a given time period
Third-degree price discrimination
Dividing a market into different sub-markets and charging different groups of people (with different willingness to lay) different prices
Working monopoly (competition and Markets Authority definition)
A firm with more than 25% market share
Working monopoly (competition and Markets Authority definition)
A firm with more than 25% market share
