8. Market Structure

Question 1

What are the four types of market structure? What characteristics define each market structure?

Answer 1

Question 2

How is the market concentration ratio used to approximate the type of market structure?

Answer 2

CR-4
0%-50% PC to oligopoly
50%-80% Oligopoly
80%-100% Oligopoly to monopoly

Question 3

Define BTE, and state its significance

Answer 3

Barriers to entry refer to any impediment that prevents new firms from competing on an equal basis with existing firms in the industry.
BTE determine the degree of competition faced by firms in an industry.

Question 4

Explain 5 types of BTE.

Answer 4

1. Cost Barriers (IEOS)
   When there are extensive IEOS such that the MES for a typical firm is relatively large percentage of the armed, a large firm supplying a large share of the market will have lower cost per unit output than a small firm. This gives large firms a cost advantage over small firms.
   Eg. Utilities, rail transport
2. Control of Key resources or Distribution outlets
   When a firm has exclusive ownership of FOP or raw materials crucial to the production process, its rival can be denied access to these vital inputs. Similarly, if a firm controls the outlets through which the products are sold, then the firm can prevent potential rivals from gaining access to consumers.
   Eg. DeBeers diamond, petroleum industry
3. Legal BTE
   - patents are exclusive rights to produce or sell an innovative product Eg. Pharmaceutical, IT
   -copyrights
   -licenses are issued by the government to a form to confer a monopoly status since the license allow only one firm the exclusive right to supply a particular good or service.
4. Financial BTE
   Brand name id often established through aggressive product differentiation. A strong brand name can act as a BTE as potential competitors will find it difficult t match up to the expenditure.
5. Strategic BTE
   Existing firms might deliberately charge lower prices as an entry deterrence.