Market Structure

Question 0

Barriers to Entry

Answer 0

Factors which make it difficult or impossible for firms to enter an industry and compete with existing producers.

Question 1

Market structure

Answer 1

The characteristics of a market which determine the behaviour of the firms within the market.

Question 2

Barriers to Exit

Answer 2

Factors which make it difficult or impossible for firms to cease production and leave an industry.

Question 3

Brand

Answer 3

A name, design, symbol or other feature that distinguishes a product from other similar products and which makes it non- homogenous good.

Question 4

Concentration Ratio

Answer 4

The market share of the largest firms in industry.

Question 5

Market concentration

Answer 5

The degree to which the output of an industry is dominated by its largest producers.

Question 6

Market Share

Answer 6

The proportion of sales in a market taken by a firm it a group of firms.

Question 7

Homogenous goods

Answer 7

Goods made by different firms that are identical.

Question 8

Non- homogenous goods

Answer 8

Goods made by different firms which are similar but not identical e.g. branded goods.

Question 9

Perfect Knowledge

Answer 9

When all buyers in a market are fully informed of prices and quantities for sale, whilst producers have equal access for production techniques.

Question 10

Perfect Competition

Answer 10

A market structure where there are many buyers and sellers, where there is freedom of entry and exit to the market, where there is perfect knowledge and where all firms produce a homogenous product.

Question 11

Price Taker

Answer 11

A firm which has no control over the market price and has to accept the market price if it wants to sell its product.

Question 12

Break- even

Answer 12

The levels of output where total revenue equals total cost.

Question 13

Shut down point

Answer 13

When a firm is indifferent between continuing operations and shutting down temporarily, as it is producing at a level where the revenue its earning is just enough to cover its variable costs.

Question 14

Monopoly

Answer 14

A market structure where one firm supplies all output in the industry without facing competition because of high barriers to entry in the industry.

Question 15

Price discrimination

Answer 15

Charging a different price for the same good or service in different markets.

Question 16

Product differentiation

Answer 16

When a business seeks to distinguish what was essentially the same products from one another by real or illusory means.

Question 17

Monopolistic Competition

Answer 17

A market structure where a large number of small firms produces non- homogenous products and where there are no barriers to entry or exit.

Question 18

Monopsony

Answer 18

When there is only one buyer in the market.

Question 19

Oligopoly

Answer 19

A market dominated by a few large suppliers. The degree of market concentration is high with typically the leading five firms taking over 60% of total market sales. They can be collusive or non- collusive, and there is normally a great deal of interdependence between firms.

Question 20

Interdependence

Answer 20

When the actions of one firm has an effect on its competitors in the market. Interdependence is a common feature of an oligopoly.

Question 21

Formal collusion

Answer 21

When firms make agreements between themselves to restrict competition, typically by reducing output, fixing prices at a high level and keeping potential competition out of the market.

Question 22

Tacit Collusion

Answer 22

When firms collude without making agreements.

Question 23

Cartel

Answer 23

A group of firms seeking to maximise joint profits in a market by engaging in price fixing. This can be achieved by controlling market output.

Question 24

Price War

Answer 24

When two or more retailers progressively put prices down to try and take each other's market share (price competition.)

Question 25

Marketing Mix

Answer 25

Factors used to attract consumers to a product (non- price competition): Price, Place, Product and Promotion.

Question 26

Game Theory

Answer 26

The analysis of situations in which players are interdependent.

Question 27

Prisoner's Dilemma

Answer 27

A game where, given that neither player knows the strategy of the other players, the optimum strategy for each player leads to a worse situation wham if they had known the strategy of the other player and been able to co-ordinate their strategies.

Question 28

Contestable Market

Answer 28

A market where there are low barriers to entry and the cost of exit is low.

Question 29

Monopolistic Competiton Characteristics

Answer 29

- A large number of small firms. - No barriers to entry/exit. - Have some control over price. - Differentiated products.

Question 30

Oligopoly Charcteristics

Answer 30

- Barriers to Entry - Non- Price Competition - Sticky/ Rigid Prices - Price Wars - Collusion - Interdependent firms

Question 31

What factors attract a customer to a product?

Answer 31

- Promotion (adverts, special offers and discounts etc.) - Place (internet vs. physical space, quantity, opening times etc.) - Product (choice, high quality vs. low quality) - Price

Question 32

Examples of barriers to entry...

Answer 32

- Patents - Limit Pricing - Cost Advantages - Advertising and Marketing - Research and Development Expenditure - Presence of Sunk Costs - International Trade Restrictions

Question 33

Examples of barriers to exit...

Answer 33

- Asset Write-Offs - Closure Costs (redundancy) - Loss of Business Reputation and Consumer Goodwill - A Market Downturn

Question 34

Perfect Competition Characteristics

Answer 34

- Many Buyers and Sellers - Freedom of Entry and Exit - Perfect Knowledge - All Firms Produce Homogeneous Goods

Question 35

Positives of Collusion

Answer 35

- Keeps Price Stable | - Rations Scarce Resources, e.g. Oil, which is an finite resource

Question 36

OPEC

Answer 36

- Permament intergovernmental organisation - Consists of 12 oil producing and exporting countries- Algeria, Angola, Ecaudor, the Islamic Republic of Iran, Iraq, Kuwait, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, the Socialist People's Libyan Arab Jamahiriya and Venezuela.

Question 37

Monopoly Characteristics

Answer 37

- One firm (pure monopoly) - High Degree of Product Differentiation - High Barriers to entry/ exit

Question 38

Problems with Monopolies

Answer 38

- No incentive to develop more efficient technology, as there is no one to compete with. - No need for research and development. - No incentive to be efficient, or to decrease advantage cost. - Do not need to increase investment, as the quality of the good does not need to increase.

Question 39

Conditions for Price Discrimination

Answer 39

- The firms must have some price-setting power. - At least two consumer goods with different PED's. - Firms to have sufficient information about consumer preferences. - No arbitrage.

Question 40

Problems with Monopoly Diagrams

Answer 40

- Monopolies not always inefficient, monopolies may be desirable on some occasions e.g. natural, but would still need strong regulation. - Monopolies do not have to be big, may exist locally. - Monopolies do not always aim to profit, as they may want to guard themselves against government intervention.

Question 41

The Market can be Spilt by...

Answer 41

- Time (peak and off-peak) - Age (children and elderly) - Location - Income (students)

Question 42

Firms in an Oligopoly might enter into collusive behaviour because...

Answer 42

- Can stop revenue and price from being unstable. - Limits competitive responses, prevent price wars. - Guarantees long- term profits.

Question 43

Why do Cartels Fail?

Answer 43

- Incentive to cheat. - Recession. - The entry of non- cartel firms. - Government or other regulatory agencies.

Question 44

Nash Equilibrium

Answer 44

When each player chooses the best possible strategy for themselves, given the strategy of the other player, neither has the reason to change their strategy.

Question 45

Benefits to consumers from Price Discrimination

Answer 45

- Results in cheaper prices for some consumers. | - Expands the market.

Question 46

Monopsony

Answer 46

When there is only one buys in the market.

Question 47

Characteristics of a Monopsony

Answer 47

- The sole buyer in the market. - Sellers cannot sell their products to other firms outside the market, only to the monopsony. - They are profit maximisers who aim to minimise their costs, by paying their suppliers the lowest price.

Question 48

Problems with Monopsony's

Answer 48

- Low wages | - Bad working conditions

Question 49

Monopsony Benefits

Answer 49

- Improved value for money. - Producer surplus, may lead to further research and development through investment. - Useful counterweight to monopolies. - Long term sustainably. - The growth of the FairTrade label shows how consumers can have an influence on welfare in the countries producing the product ( feel good factor.)

Question 50

Monopsony Costs

Answer 50

- Low prices drives firms out of the market, which also reduces the amount that's available for purchase, economic problem, consumers have infinite wants. - Reduced profits and wages for firms that remain, workers are also consumers. - May force suppliers to change their product.

Question 52

Monopoly Disadvantages

Answer 52

- Abnormal profits means... 1) Less incentive to be efficient and to develop new products. 2) Efforts are directed to protect market dominance. - Higher prices and lower output for domestic consumers. - Monopolies may waste resources by undertaking cross- subsidisation, using profits form one sector to finance losses in another sector. - Monopolists may undertake price discrimination to raise producer surplus and reduce consumer surplus. - Monopolists do not produce at the most effective point of output. - Monopolists can be complacent and develop inefficiencies. - Monopolies lead to a misallocation of resources by setting prices above marginal cost, so that price is above the opportunity cost of providing the good.

Question 53

Monopoly Advantages

Answer 53

- Abnormal profits means... 1) Finance for investment to maintain competitive edge. 2) Reserves to overcome short-term difficulties and provide funds for research and development. - Monopoly power may mean powers to match large overseas organisation. - Cross subsidisation may lead to an increased range of goods or services available to the consumer. - Price discrimination may raise total revenue to a point, which allows survival of a product or service (it is often said that economy class flights are funded by those flying business and first class.) - Monopolists can take advantage of economies of scale, which means that average costs may still be lower than the most efficient average of a small competitive firm. - There are few permanent monopolies. Super- normal profits act as an incentive to break down the monopoly through a process of creative destruction, i.e. undermining the monopoly through product development and innovation. - Monopolists avoid undesirable duplication of services and therefore a misallocation of resources.

Question 54

How do you make markets more contestable?

Answer 54

- De- regulation - Tougher competition - The changing nature of technology

Question 55

Nationalism

Answer 55

Transfer of a firms ownership from the private individuals to the state.