Unit 1 - Chapter 12 Flashcards
Monopoly and other market failures
Monopoly
A market dominated by one firm.
Pure monopoly
One firm only in a market.
Natural monopoly
A market in which there is only room for one firm benefiting to the full from economies of scale.
Utility industry
An industry, which delivers its service to million of separate customers. E.G. the post
Causes of monopoly
1) Geographical causes
2) Economies of scale
3) Government created monopolies
4) Control of market outlets and raw materials
5) Advertising as a barrier to entry
Geographical monopolies
Occur when for climatic or geological reasons in a country or location there is only one source of supply.
Economies of scale monopolies
The size of the market only allows room for one firm benefiting from economies of scale.
Government created monopolies
Through:
- Nationalisation
- Patent laws
Control of market outlets and raw materials
Firms try to obtain control over market outlets in order to deny access to their competitors.
Advertising as a barrier to entry
Bigger firms and monopolies pay for large advertising campaigns which the smaller firms cannot afford and thus their products cannot enter the market.
Economy of scale
Falling average or unit cost as a firm increases its size or scale
Natural barriers to entry
Barriers such as economies of scale and indivisibilities.
‘man-made’ barriers to entry
- Patents
- Setting prices deliberately low
- Deliberately building excess capacity
Immobility of labour
The inability of labour to move from one job to another, either for occupation reasons E.G. need for training, or geographical reason E.G. the cost of moving.
Income
A flow of money received E.G. wage
