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Theme 3 > Market structures > Flashcards

Market structures Flashcards

1
Q

Static effiency

A

The most efficient allocation of resources at a given point of time

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2
Q

Dynamic effiency

A

The efficiency gains made by a firm over time

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3
Q

Allocative efficiency

A

P=MC

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4
Q

Productive efficiency

A

The lowest point on the AC curve

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5
Q

X inefficiency

A

Waste is produced as a result of organisational slack

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6
Q

Perfect competition

A

Price takers
Many buyers and sellers
Homogenous goods
Freedom of entry and exit
Perfect knowlegde

Agriculture industry

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7
Q

Short run vs long run perfect competition

A

SR
Market sets the price
Profit max (MR=MC)
Profits made

LR
No barriers to entry and exit
Firms enter
Compete away profits
Normal profits are made

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8
Q

Efficiency gains in PC

A

PE = Lowest point on AC
AE = P=MC

Dynamic inefficient not enough profits to invest in research and development

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9
Q

Monopolistic competition

A

Many buyers and sellers
No barriers to entry and exit
Heterogenous goods
Some price setting ability

Hairdressing, sweet shops

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10
Q

Monopolistic competition SR vs LR

A

SR
MR=MC
They can make supernormal profits

LR
Firms enter
Supply rises, price rises
Profits are competed away

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11
Q

Oligopoly

A

Few firms that dominate the market and control the market share

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12
Q

Oligopoly characteristics

A

Differentiated goods
High concentration ratio
Barriers to entry and exit
Interdependent

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13
Q

Kinked demand curve

A

If firms increase price, others will not follow (elastic)
If firms decrease price, others will follow (inelastic)

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14
Q

N firm concentration ratio

A

The percentage of the market that a few firms have control over

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15
Q

Why may firms collude?

A

Maximize industry profits
Reduce the uncertainty within the market

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16
Q

Why may firms not collude?

A

It is illegal
They may have a differentiated good that makes them stand out

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17
Q

Overt collusion

A

Formal agreement

18
Q

Tacit collusion

A

No formal agreements

19
Q

Cartel

A

A group of firms that come together to set prices

OPEC

20
Q

Price leadership

A

One firm sets prices due to its size or cost and becomes the dominant firm

Tesco

21
Q

Barometric firm price leadership

A

When a firm gets goods at predicting prices in the industry

22
Q

Game theory

A

The reaction of one player to changes in strategies by another player

23
Q

Price wars

A

Setting low prices due to non price competition being weak
Consumers are conscious about their prices

Supermarket industry

24
Q

Predatory pricing

A

Firms set prices below AC
To drive out new entrants

25
Q

Limit pricing

A

Setting prices low enough to make normal profits
To prevent new entrants entering the market

26
Q

Why do firms need non price competition?

A

Prices in the market are sticky, they need to gain a larger market share

27
Q

Examples of non price competition

A

Tesco clubcard scheme
Computers for school schemes

28
Q

Types of non price competition

A

Advertising
Branding
Loyalty cards
Customer service
Product development

29
Q

Efficiency in oligopolies

A

AE and PE inefficient
Dynamically efficient

30
Q

Pure monopoly

A

Sole seller in the market

Google 88% market share

31
Q

Legal monopoly

A

More than 25% market share

32
Q

Third degree price discrimination definition

A

Charging different prices to different consumers

33
Q

Third degree price discrimination effectiveness

A

Consumers must have different elasticities of demand
There must be absence of reselling

Workers travelling to work (inelastic) pay higher prices
People travelling to socialize (elastic) pay lower prices

34
Q

Inelastic curve

A

Steep vertical line

35
Q

Elastic curve

A

Steep horizontal line

36
Q

Benefits of price discrimination

A

Firms get higher profits
Consumers get lower prices (offpeak travel tickets)
More equality
Higher consumer surplus

37
Q

Natural monopolies

A

Large economies of scale

Royal mail, National rail

38
Q

Why are their high barriers to entry in a natural monopoly?

A

High sunk costs (railways)
Low average costs (eos)

39
Q

Benefits of a natural monopoly

A

Huge profits
Finance reserves
Competitive
Economies of scale

40
Q

Costs of a natural monopoly

A

PE, AE and XE inefficient
Monopsony power
Higher prices
Less choice

41
Q

Price leadership

A

One market may set really high prices using their monopoly power to set a market clearing price

Theme 3 (6 decks)

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