Monopolies Flashcards

1
Q

What is a monopoly power?

A

When one firm has more than 25% of market share
- legal monopoly

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is a monopoly?

A
  • When one seller dominates the market
  • Different products so price makers
  • high barrier of entry/exit - super normal profit
  • Imperfect info (Excludes)
  • Firm is profit maximiser
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

what are the two types of monoploies?

A
  • Pure monopoly (rare)
  • Molopoly power (25% MS
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are the 4 efficency analysis?

A
  1. Allocative efficiency
  2. Productive efficiency
  3. X - efficenciy
  4. Dymanic efficiency
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are the static efficencies?

A

Can’t increase the production of one good without decreasing another
1. Allocative efficiency
2. Productive efficiency
3. X - efficenciy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is allocative efficency?

A

Price = Marginal Costs, Supply = demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What happens if there is no allocative efficiency?

A

Exploit customers with higher prices than MC
Lower consumer surplus
Choice decreases
Lack of competitive forces

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is product efficiency?

A

the ability of a firm to produce goods or services at the lowest possible cost, given the level of output and the available technology

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is X - efficiency?

A

X Inefficiency occurs when a firm lacks the incentive to control costs = WASTE
- Lack of competivie drive
- Harder to cut costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is dynamic efficiency?

A

occurs over time and is strongly linked to the pace of innovation within a market and improvements in both the range of choice for consumers and also the performance / reliability / quality of products.
- SUPERNORMAL PROFIT

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is supernormal profit?

A

Excess profit of normal profit
- can be used for capital investments, reinvest can be + and -

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What do monopolies to do society?

A

Reduce society surplus, bad for society can cause market failure

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

How to show why monopolies cause Deadweight welfare loss

A

Draw a monopoly graph and use price and quanity of both monopoly and competitive firm
CF - MC (S) = AR (D)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is price discrimination?

A

Where firms charge different prices to different consumers for identical goods with no difference in cost of production

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are the 3 conditions needed for price discrimination?

A
  1. Price making ability (monopoly power)
  2. Information separate the market (Different PED - online shopping)
  3. Prevent re-sale ( market seepage)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is market seepage?

A

Resale - a buyer cannot purchase in one market at one price and sell in another at a higher price

17
Q

What is the first degree of price discrimination?

A

Firms set price at what consumers and willing and able to pay
- causing no CS, now supernormal profit

18
Q

What is the second degree of price discrimination?

A

Certain capacity, so they reduce the price to fill these fixed marginal costs
e.g cinemas, hotels
- Gain CS

19
Q

What is the third degree of price discrimination?

A

Exploiting those with inelastic demands (need for commuting) face high prices, whereas those with elastic demand have lower
e.g railways - commuting and leisure travel

20
Q

What are the negatives of price discrimiation?

A
  • Allocative efficenicy
  • Inequality (3rd, low income)
  • Anti-competitive prices (3rd)
21
Q

What are the positives of price discrimination?

A
  • Dynamic efficiency (reinvest)
  • Economies of sale (future lower price)
  • Benefits some (2nd, 3rd) but doesn’t outweigh the cons
  • Cross subsidies (reinvest)
22
Q

What is a natural monopoly?

A

This happens with utility providers
e.g Water, railways, electricyt

23
Q

Characteristics of a natural monoploy

A
  1. Huge fixed costs (starter, infrastructure)
  2. Big potential for economies of scale
  3. Rational for 1 firm to supply market, so competition is undesireable
  4. Competition results in wasteful duplicates of resources and non-exploitation of economy of scale
24
Q

Where is profit maxmising on a graph

A

when marginal cost = marginal revenue

25
Why can't natural monoploies be profit maximisers?
As the products/ service is essential for the nature of society so need regulators to enforce working at allocative efficency - subsides to cover the LRMC and LRAC difference
26
Are natural monopolies good?
With subsides they can work at allocative efficiency, where as if there were competition this wouldn't be the case
27
Cons of monolpoies
- Allocative inefficiency (£ higher MC, so consumers are exploited - Productive inefficiency - X inefficiency (waste) - Inequalities in necessity markets
28
Pros of monopolies
- Dynamic efficiency - reinvest - Greater economies of scale - natural monopolies - Crossnsubsidation - reinvestt
29
Evaluations for monopolies
- Dynamic efficiency (profits can go elsewhere - pay workers) - Different objectives (no Profit max) - Regulations - Type of goods - Price discrimination
30
What are the conditions for monopolistic competition
1. Many buyers/sellers 2. Slightly diff goods - PED, subs 3. Low barriers of entry 4 Good info 5. Non price competitive 6. Firms are profit maximisers (MC=MR)
31
Examples of monoploistic competitiors
Hairdressers, Taxi, restaurants
32
What hapens in the short run of monoploistic competitiors
Have high supernormal profits, can be profit maximisers
33
What happens in the long run of monoploistic competitors
New firms will enter as high profits, but demand will shift and will be normal profits
34
What happens to efficiency during long run of monoploistic competitiors
- No allocative efficiency - high costs, less choice - No product efficiency No dynamic efficiency no high profits
35
How to draw a long run graph for monoploistic competitiors
1. AR and MR (demand) 2. MC 3. Profit max at p 4 AC (semi circle)