4.2.1 Market failure in businesses Flashcards
What are cartels?
Cartels are explicit agreement between firms (usually in oligopoly markets) to engage in anti-competitive behaviour in order gain market power over their consumers and reduce consumer surplus. This is done through resricting supply or fixing prices
Cartels are illegeal practices.
What is collusion?
An agreement between firms to engage in anti-competitive behaviour to benefit themslves.
What are tacit agreements?
Implicit agreements by firms, meaning they are not formal agreements but they do this to also reduce competition. Impliciit agreements are much harder to be spotted by the government so arent always spotted and regulated
Define monopsony power
Where there are many suppliers in a market but only one buyer of the service/good. Therefore have monopsony power to negotiate and reduce prices as they are the only source of demand for the supplier.
How can monopoly power be seen in the labour market?
Trade unions can be seen as monopolies as they may be the only supplier of a group of skilled workers thus can negotiate higher wages through their collective bargnaning power.
How can monopsony power be seen in the labour market.
If there is only one firm employing particular skilset of laboureres/workers then they can have monoposony power and negiotiate lower wages as theyre the only consumer of the appropriately skilled worker.
Implications of market failure on economic agents?
natural monopolies
Firms rationally decide to profit maximise which is often in confliction with consumers best interest as utility cant be maximised if high prices must be paid as firms charge high to reawrd through profits.
Natural monopolies can majorly negatively impact consumers due to the purchaisng power of consumers being so low and monopoly charging very high pices due to their great market share.
However if firms are benefitting from economies of scale it means they can grow and gain more market share. This usually conflicts with consumers as the power of firms in the market grows however the economies of scale can benefit the consumer as it means their AC have fallen which can be passed onto the consumers through reduced prices.
