3.8 Market Structure Flashcards
1
Q
What are the six characteristics of market structures?
A
- Number of sellers
- Number of buyers
- Barriers to entry
- Type of product (same/different to competitors’?)
- Type of information (do buyers/seller have the same info?)
- Do firms set prices or accept market price?
2
Q
What are the characteristics of competitive markets?
A
- Many buyers & sellers
- Market price accepted
- Few barriers to entry
- Buyers/sellers have perfect knowledge of prices
- All products are identical
3
Q
What are the pros of competitive markets?
A
- Lower prices (competition)
- Better quality (competition)
- More choice (more sellers)
4
Q
What are the cons of competitive markets?
A
- Worse quality (to lower prices)
- Too much choice
- Poor worker welfare (cut costs to lower prices)
5
Q
What are the characteristics of monopolies?
A
- A single seller, no substitutes
- Firm sets all prices & controls output
- High barriers to entry (firm can prevent competition)
- Usually defined as >25% market share
6
Q
What are the pros of a monopoly for the firm?
A
- Large profits
- Increased global competitiveness
- Economies of scale
- Price discrimination (change price based on elasticity of demand)
7
Q
What are the cons of a monopoly for the firm?
A
- Lack of competition, reduced incentive for efficiency
- Misallocation of resources
- Cross subsidisation can create inefficiencies
8
Q
What are the pros of a monopoly for consumers?
A
- Large profits –> investment/innovation –> better quality products
- Cross subsidisation can lower prices
9
Q
What are the cons of a monopoly for consumers?
A
- Higher prices, no substitutes
- No product innovation (no competition), worse quality
- Worse customer service
- Cross subsidisation increase prices on some products
