YEAR 13 - THEME 3 Flashcards
Pure monopoly
where only one producer exists in the industry
monopoly power
when firms influence the market in the same way through their behaviour
- this is determined by there degree of concentration in the industry
characteristics of a monopoly
- one single seller
- high barriers to entry
lots of control over price
advantages of monopolies
- economies of scale
- if grown organically they are efficient
- can reinvest supernormal profits back into products
disadvantages of monopolies
- higher prices and lower output
- allocative efficiency -> price is greater than MC
- supernormal profit -> unequal distribution of income
- diseconomies of scale
natural monopolies
high barriers to entry and high start up costs that prevent any rivals from competing
price discrimination
charging a different price to different groups for the same good
–> eg ~ student discounts
first degree price discrimination
- charging consumers the maximum price that they are willing to pay
second degree price discrimination
- charging different prices depending on the quantity consumed
third degree price discrimination
- charging different prices to different groups for the same good
conditions for price discrimination
- firms must operate in imperfect competition
- firms must be able to separate markets and prevent resale -> stop adults use childs tickets
- different consumer groups have elasticities of demand -> students with lower income more price elastic
advantages of price discrimination
- firms will be able to increase revenue
- increased revenue can be used for research and development which benefit consumers
- some consumers will benefit from lower fares
disadvantages of price discrimination
- some consumers will end up paying higher prices
- decline in consumer surplus
- those who pay higher prices may be the poorest
oligopoly
when there are a large number of firms in the industry but the industry is dominated by a small number of very large producers
concentration ratio
the proportion of total market share held by 3,4,5 firms
features of an oligopoly
- price = relatively stable
- potential for collusion
- goods are homogeneous
- high barriers to entry
- non price competition
- game theory can be used
- brand loyalty
internal economies of scale
- purchasing -discount on bulk
- marketing - promote brand name
- financial - low interest loans
-technical - best machinery - managerial - best staff/specialists
- risk bearing - trial and error
external economies of scale
- better unis
- better infrastructure
- communication networks
- highly skilled population
what is limit pricing
charge below the average cist of your rivals
what is predatory pricing
charging a price to force new rivals out [ illegal ]
what is revenue maximisation
pricing in order to make considerable revenue
what is profit maximisation
pricing to satisfy the shareholders by making as much profit as possible
what is normal pricing
pricing to cover your ATC / costs
what is price war
constantly under cutting your equally powerful rivalha
what is sales volume pricing
charging a price where AR=AC
collusion
when two or more firms ‘agree’ to manipulate the market for thier own self intrest
types of collusion
- formal collusion
- tacit collusion
- price leadership
what is formal collusion?
- when firms make formal agreement to stick to higher prices
what is tacit collusion?
where firms make informal agreements or collude without actually speaking to their rivals –> no real proof
what is price leadership?
unofficially following rhe prices set by a market leader
