Non-price Competition in Markets

Question 1

Price Discrimination

Answer 1

This occurs when a firm sells the same product to different markets with differing elasticities of demand.

Off-peak travelers will pay less for a train than peak-time travelers.

Question 2

Monopoly (Pros and Cons)

Answer 2

Advantages:
-Investment form supernormal profit.
-Cross-Subsidisation provides more choice.
-Economies of Scale

Disadvantages:
-Less incentive to invest
-Inefficiency
-High prices
-Price discrimination

Question 3

Natural Monopoly

Answer 3

A natural monopoly occurs when an industry can only support one firm.

There are often high sunk costs.

E.g. Railways, water and gas

Question 4

Monopsony

Answer 4

This occurs when there is one big buyer of a good.
This can lead to the exploitation of suppliers.

E.g. NHS and nurses or UK Govt and defence equipment.

Question 5

Contestability

Answer 5

A contestable Market has low sunk costs and therefore low barriers to entry/exit.

Contestable market:
-low fixed costs
-low sunk costs
-small brands

Uncontestable markets:
-Strong firms
-Non-price competition
-CMA investigations