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Micro Econ > Perfect Competition, Imperfectly Competitive Markets And Monopoly > Flashcards

Perfect Competition, Imperfectly Competitive Markets And Monopoly Flashcards

1
Q

Features of perfect competition

A

Low barriers to entry and exit
Price takers
Homogeneous goods
Many buyers and sellers
Perfect information

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2
Q

Monopoly features

A

One firm dominating the market
High barriers to entry and exit
Highly differentiated goods
Price makers

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3
Q

Types of monopolies

A

Natural monopoly
Legal monopoly
Pure monopoly

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4
Q

Types of oligopolies

A

Collusive
Competitive

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5
Q

How to distinguish between market structures

A

Number of firms in the market
Market entry barriers
Product differentiation

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6
Q

Firm objectives

A

Profit maximisation
Growth maximisation
Survival
Sales revenue maximisation
Satisficing

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7
Q

Where’s the point of profit maximisation

A

P max is where MR=MC

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8
Q

Divorce of ownership from control

A

The owners and those running the firm (managers) are different groups with different objectives

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9
Q

Consequences of divorce of ownership from control

A

Managers can adopt a principle of their own, not in the interests of shareholders/owners (principal agent problem)
Managers can take risks that would benefit them if successful yet impose heavy costs if it failed
Moral hazard of managers acting against best interest of owners to benefit themselves (ceteris paribus?)
Information asymmetry between owners and managers

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10
Q

Point of Revenue maximisation

A

MR = 0

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11
Q

Satisficing definition and benefits

A

Achieving a satisfactory outcome rather than the best possible outcome can compromise on managers and owners differing views on the firm

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12
Q

Productive efficiency

A

Occurs when it is impossible to produce more of one good without producing less of another, within a firm this is when ATC is minimised (at its lowest point)

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13
Q

Allocative efficiency

A

Occurs when it is impossible to improve economic welfare by reallocating resources between markets.
Price = MC

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14
Q

Allocative inefficiency

A

P>MC
P<MC

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15
Q

Monopoly

A

Market with 1 dominant firm (usually 25% of market share)

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16
Q

Natural and artificial barriers to entry

A

Natural : barriers caused by geography
Artificial: man-made barriers e.g: patents

17
Q

Advantages of monopoly

A

Economies of scale
Dynamic efficiency
Monopolies can use supernormal profits to fund R&D

18
Q

Disadvantages of monopoly

A

Can lead to productive and allocative inefficiencies
Reduces competition and therefore consumer choice

19
Q

Features of monopolistic competition

A

Large number of buyers/sellers
Low barriers to entry/exit
Differentiated yet similar goods
Elastic demand
Price makers

20
Q

Price competition

A

Occurs when a firm reduces prices in order to sell more of a good
Can be in the form of limit pricing, predatory pricing or ‘special offer’ pricing

21
Q

Consequences of price competition

A

Can lead to self-destructive price wars, this, however, benefits consumers

22
Q

Types of Non-price competition

A

Marketing competition
Quality competition
Persuasive advertising
Product differentiation
Brand imaging/packaging
Style/design

23
Q

Oligopoly features

A

Few firms making up ~60% market share
Interdependent
Collusive or competitive

24
Q

Concentration ratio

A

Measures market share of biggest firms in the market (excluding ‘others’)

25
Q

Cartel

A

Collusive agreement between firms, usually to fix prices, or to restrict output to deter entry of new firms

26
Q

Tacit vs Explicit collusion

A

Tacit : when there’s an understanding but no explicit agreement between the firms
Explicit : direct communication and agreement among firms to fix prices or divide markets

27
Q

Limitations of the kinked demand curve

A

Incomplete theory, not explaining how/why the firm chooses to operate at the pint of gradient change
Evidence in real live gives little support
More reasonable to assume firms would test the market

28
Q

Advantages of oligopoly

A

Firms benefit from economies of scale, meaning they can become dynamically efficient
Can pass low costs to consumers in the form of low prices
Easy for consumers to compare and choose their best option
Can innovate and develop new/better products

29
Q

Disadvantages of oligopoly

A

Often they restrict output and raise prices
Cartels can cause high prices and productive/allocative inefficiencies
Small firms struggle to enter the market

30
Q

Price leadership

A

Setting of prices in a market (usually by a dominant firm) which is then followed by the smaller firms in the market

31
Q

Price agreement

A

Agreement between a firm, similar firms, suppliers or customers regarding the pricing of a good/service

32
Q

Price wars

A

When rival firms continuously lower prices in order to undercut each other

33
Q

Price discrimination

A

Charging different prices to different consumers for the same product based off willingness to pay

34
Q

Conditions for price discrimination

A

Different groups must be identifiable
Groups must have different elasticities
Markets must be separate to avoid seepage (lower buyers selling at higher price)

35
Q

Contestable market

A

A market where the potential exists for new firms to enter. Perfectly contestable market has no barriers to entry/exit and no sunk costs

36
Q

Why contestability is significant to the performance of an industry

A

Low contestability leads to monopoly abuse and exploitation of consumers
Contestability incentivises firms to boost quality rather than just to profit maximise

37
Q

Hit and run competition

A

When a new entrant hits the market, makes profits, then leaves (when there are no costs to barriers of entry or exit)

38
Q

Sunk costs

A

Costs that have already been incurred & can’t be recovered

39
Q

Static efficiency

A

Efficiency at a specific point in time

Micro Econ (5 decks)

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