Monopoly Flashcards
What is a pure monopoly
when one firm has full control of the market with 100% concentration ratio
What is a legal monopoly
a maximum of four firms in the market who have a concentration ratio of 25%
What is a monopoly
a market structure where one firm has control over goods and services in a ,market
two types of monopoly
pure and legal
What are the assumptions of a monopoly
High barriers to entry
profit maximising
100%/25% concentration ratio
What are barriers to entry
the difficulty and contestability of entering a Market
What are examples of having high barriers to entry
Legal barriers( Patent, copyright,Trademarks)
Benefitting from internal economies of scale
Loyalty schemes
Anti competitive practices
Sunk costs
what is a patent, copyright and trademark
patent: An exclusive right granted for an invention granted through legal application
Copyright: An automatic right which protects original literacy, music and artistic rights
Trademark: Protects logos and signs that are used in relation to a particular product of service
What’s an incumbent firm
Firms already in the market
What’s a sunk cost
costs that can’t be reclaimed or recovered
e.g wages, rent
what are anti competitive practices
using vertical integration to stop other firms using its resources
e.g IKEA having their own wood
What are the efficiencies on legal monopoly diagram
Dynamic efficiency- MC=MR Qmax using SNP to reinvest
Productive efficiency- MC=AC Qprod
Allocative efficiency- MC=AR Qallo
X inefficient anywhere above ATC, not using profit for right reasons
Where do consumers want businesses to operate at
Qallo
no welfare loss
allocating resources efficiently
What’s price discrimination
when a firm charges different consumer groups different prices for the same good
e.g buses, planes
What are two types of demand on price discrimination
Elastic and Inelastic
What is contestability like in monopolies
Low contestabilty in both
What are monopolistic firms obj
Maximise profits
How much regulation in monopoly
lots added in both but more in pure
Are monopoly collusive
No collusive behaviour
Societal Impact
Both negative
create a welfare loss
Examples of pure monopoly
Royal Mail
ThamesWater
Examples of legal monopoly
Apple
What 3 things have to be drawn for price discrimination
Elastic diagram
Inelastic Diagram
Whole market
What must happen to show why they price discriminate
Elastic+Inelastic>Whole Market
in regards to SNP
Benefits on Monopoly to consumer
Can get high quality products
Loyalty programs such as Tesco club card
Drawbacks to consumer
High prices
Little product improvements and changes
Less Choice
Benenfits to producers
Make higher SNP due to them being able to set prices
Can take risks
Price Discrimination
High concentration ratio
Drawbacks to producers
Regulation added
Less incentive for research and development
Negative press
X inefficient
Benefits to government
High SNP means more corporation tax
Increased GOV REV
Less unemployment
High skilled labour
Drawbacks to governments
Extra administrative costs to regulate
Inequality with disproportion of income
Welfare loss created
