Non-Competitive Markets

Question 1

state what is meant by a non-competitive market

Answer 1

one where firms have some power to influence price

the degree of power depends on where the market is in terms of the spectrum of competition

monopoly markets have the least competition

Question 2

explain how producers operate in a non-competitive market

Answer 2

they operate in different ways - this depends on the spectrum of competition

monopolists have the most monopoly power - have an inelastic price elasticity of demand allowing it to set higher prices

there are no close substitutes for the monopolist’s products so consumers have no choice where they buy from
the greater degree of competition the less likely is a firm to have monopoly power

Question 3

state the meaning of monopoly

Answer 3

occurs when one firm dominates a market

Question 4

explain the causes and consequences of monopolistic power.

Answer 4

• price leaders: they can charge high prices but are often restricted from doing so by government regulations
• new product development is not affected by competitors
• barriers to entry exist in monopoly markets that stop firms from entering the market: high costs to enter the market, economies of scale experienced by large firms

Question 5

state the meaning of oligopoly

Answer 5

exists where there are only a few firms in the market - they can exploit consumers by charging high prices.

Question 6

explain the causes and consequences of oligopolistic power.

Answer 6

• barriers to entry such as advertising exist - they tend to compete on non-price competition such as promotion
• they will take into account the reaction of consumers when making decisions regarding price.

Question 7

describe some of the characteristics of oligopolies

Answer 7

• do not tend to compete on price in the long run
• tend to spend heavily on new product development
• firms must ensure that their products are accessible if they are going to be successful
• branding is crucial