week 6: market power, structures + advertising Flashcards
Define market structure
Factors that determine the competitiveness of the market
The concept of competitive markets fails to explain: [3]
- why the number of firms differs across industries;
- why firms in different industries have different sizes;
- why profitabilities differ across industries.
product characteristics differ across markets …?
homogenous + heterogenous
- firms are involved in costly activities unrelated to production such as?
- advertising
- product differentiation
- r+d
- tech + product innovations
market conduct of firms is ______ + ______ __ _______ taken by buyers, rivals, suppliers n gov.
market conduct of firms is strategic + dependant on actions taken by buyers, rivals, suppliers n gov.
What are the 4 main market structures?
- PERFECT COMPETITION
- MONOPOLISTIC COMPETITION
- OLIGOPOLY
- MONOPOLY
Describe the characteristics of perfectly competitive markets?
- A large number of identical firms
- No barriers to entry/exit
- Homogenous products
- 0 long run profit
Describe the characteristics of monopolistic competition markets?
- Many firms
- Small/Moderate entry barriers
- Highly differentiated products
- Zero long run profit
Describe the characteristics of Oligopolies?
- A few big firms
- high entry barriers
- Homogenous and Heterogenous goods
- Positive long run profit
Describe the characteristics of Monopolies?
- One firm in the market
- Impassable entry barriers
- Absolute differentiation of products
- Very large LR profits
What is the SCP paradigm?
performance depends on the conduct of firms that in turn depends on market structure
Define ‘performance’
The success of an industry to provide benefits to society
Define Market Power
The ability of a firm to profitably raise the market price above marginal costs
Market power ______ as no. of competing firms increase
Decreases
Types of Entry/Exit barriers?
- Institutional and
- Economic (strategic+non strategic)
What are some institutional entry/exit barriers?
- licensing
- zoning
- patents
- tariffs
What are some non-strategic economic barriers?
- absolute cost advantage
- sunk costs
- scale economies
What are some strategic economic barriers?
- limit pricing
- advertising
- repuation
- collusion
- unionization
- price discrimination
- bundling+tying
- lock-in
- vertical integration
- networks
explain these barriers
USA spent how much on advertising in 2021?
USA spent 163bn dollars on advertising compared to 18.5 bn in the UK! USA had the highest spending