Section 4 - Market Structures Flashcards
Perfect competition
A description of how a market would work if certain conditions were satisfied
Perfect information for consumers
Perfect knowledge of all goods and prices in a market
Perfect information for producers
Perfect knowledge of the market and production methods
Allocative efficiency
When a good’s price is equal to what consumers want to pay for it
Productive efficiency
Ensuring the costs of production are as low as they can be
X-efficiency
Measures how successfully a firm keeps its costs down.
X-inefficiency
Production costs could be reduced at that level of production
Dynamic efficiency
Improving efficiency in the long term; refers to the willingness and eagerness of firms
Internal market
Where different parts of the same organisation compete against each other
Barrier to entry
Any potential difficulty or expense a firm might face if it wants to enter a market
Incumbent firms
Firms that are already in the market
Predatory pricing
Incumbent firms lowering prices to a level that drive entrants out of business
Monopoly (pure monopoly)
A market with only one firm in it
Monopsony
A situation when a single buyer dominates a market
Price discrimination
When a seller charges different prices to different customers for exactly the same product
Consumer surplus
The difference between the actual selling price of a product and the price a consumer would have been willing to pay
First degree price discrimination
Where each individual customer is charged the maximum they would be willing to pay
Second Degree price discrimination
Often used in wholesale markets, where lower prices are charged to people who purchase larger quantities
Third degree price discrimination
When the firm charges different prices for the same product to different segments of the market
Concentrated markets
Industries that are dominated by just a few companies (even though there may be many firms in that industry overall)
Oligopoly ( market structure)
A market that is dominated by just a few firms, has high barriers to entry, and offers differentiated products
Oligopoly (conduct of firms)
A market in which firms are interdependent and use competitive or collusive strategies to make this interdependence work to their advantage
Competitive behaviour
When the various firms don’t cooperate, but compete with each other
Collusive behaviour
When the various firms cooperate with each other especially over what prices are charged
Collusive oligopolies
Lead to higher prices and restricted output, and allocative and productive inefficiency
Output quotas
The level of output each of the firms will produce
Interdependency of firms
Each firm is affected by the behaviour of the others
Game theory
Two or more ‘players’ ( people, firms etc.) are each trying to further their own interests. The fate depends on their own and others decisions
Prisoner’s dilemma
How interdependent firms might act in an oligopolistic market.
First- mover advantage
a firm’s ability to be better off than its competitors as a result of being first to market in a new product category
Payoff matrix
The potential profits and losses that each firm could make in the various possible scenarios
Monopolistic competition (imperfect competition)
Some product differentiation and very low barriers to entry
Contestability
How open a market is to new competitors, even if currently there’s little actual competition
Contestable markets
Barriers to entry and exit are low and supernormal profits can be made by new firms ( in short run )
Patents
Give a firm legal protection against other firms copying its products or production methods.
Sunk costs
When costs can’t be recovered when a firm leaves an industry
Hit and run tactics
This means entering a market while supernormal profits can be made and leaving once prices fall down to normal-profit levels
Technological change
The invention of new products and services, or new production methods
Invention
Making something new
Innovation
Changing a product or process that already exists
Creative destruction
the process of economic change that results from the introduction of new technologies or products that render existing ones obsolete
