Market Structures Flashcards
(148 cards)
1
Q
Criteria for perfect competition
A
Halfpppp
Homogenous products- identical- perfect substitutes, foriegn exchange market
All firms access factor of production
Large no of buyers and sellers
Free costless entry into and exit from market
Perfectly elastic demand curve (horizontal)
Price takers- firms cannot dictate market price
Perfect knowlegde- infor for buyers and sellers
Profit max key objective- consumer utility max
2
Q
Sr to lr for perfect competition
A
In lr- abnormal profit encourages entry for new firms- signallying mechanism
Decrease price- lras
Lr- normal profit produced ar+ac
No further incentives0 long run equilibrium
3
Q
Allocative efficiency- perfect comp
A
Sr and lr - p=mc
4
Q
Productive efficiency- percect comp
A
Lr, lowest point lras
X-efficency
5
Q
Dynamic efficiency perfect comp
A
Little scope innovation- little abnormal profit to fund
6
Q
Examples perfect competition
A
-foreign exchange- homogenous, wide range of buyers and sellers as many firms, perfect.good info about relative prices, easy to compare prices
-agricultural markets- many farmers selling identical products, many buyers available, market easy to compare prices, perfect info
-internet-price comparison websits
-insurance
7
Q
Allocative efficiency def
A
Consumer satisfaction is maximised in production of goods and services
P=mc=ar
On ppf but what price depends consumer preference
8
Q
Productive efficiency
A
No additional/max output can be produced from the factor inputs available at the lowest position av or unit cost
Av cost min
Ppf on the curve
At lowest ac, where ac=mc
9
Q
Dynamic efficiency
A
Firms improve technology and production methods over a period of time
10
Q
Static efficiency
A
When all resources are used in the most efficienct manner at a point in time (productive and allocative)
11
Q
Economic efficiency
A
Allocative and productive efficiency at the same time
P=mc=ar=min point ac
12
Q
Economic efficiwency
A
Allocative and productive efficiency at the same time
P=mc=ar
13
Q
Innovation
A
Commercially sucessful exploitation of ideas
Making inventions economically viable
14
Q
X-inefficiency
A
Occurs when a fuirm doesnt produce at lowest possible ac
May be due to lazy employers or lack real competition meaning monopolist less of an incentive to invest in new or ideas
Seen on graph as anywhere above ac
15
Q
Monopolistic competition
A
Form of imperfect comp, as products are differentiated
Can be found in real world markets eg, taxi and mincabs, coffee shops,
16
Q
Factors for monopolistic comp
A
Large no firms in market
No barriers to entry or exit
Each firm downward sloping demand- differentiated- goods produced partial but not perfect substitutes
Product differentaition means each firm possesses a degree of monopoy power over its product
If brand increases price, doesnt loose all competition as brand loyalty
Industry conc is low- everyone low market share
Non price differnetiation occurs
17
Q
short run monopolistic comp
A
Normal diagram
Ar reps demand for one firm rather whole market
Demand curve likely to be more elastic- steeper
18
Q
Long run- monopolistic how to draw
A
Draw ar and mr
Ar tangental to ac
Mc cross ac lowest point
19
Q
Sr to lr monopolistic
A
Market structure of monopolistic comp is defined as having low barriers to entry and exit, many buyers and sellers and product differentaiation
Outcome in sr is that firms can earn abnormal profit, this outcome is noty productive or allocative efficnet
Existance sr abnormal profit is attractive to new firms
New firms enter industry as barriers to entry are low
Individ demand curve or av rev curve for incumbent (existing firms in market) shift to left as market shares are reduced
Incumbent firms av rev are cont shift left until reaches a tangent with av cost curve, normal profits covered
Lr, normal profit, not productive or allocative efficient
20
Q
Productive efficiency monopolistic comp
A
Producing point does not cross the ac at lowest point
Saturation- unable exploit fully econ of scale
21
Q
Allocative efficiency monopolistic competition
A
P=mc not occur
22
Q
Dynamic efficiency- monopolistic comp
A
Occurs as differentiation occurs, some choice, limited with normal profit
23
Q
Negative externalities- monopolostic comp
A
Social cost packaging
Heavy spending on marketing, advertising, inefficient use scarce resoucres
24
Q
Monopolistic comp stable in lr?
A
-normal profit max in lr
In realisty stable equilibrium may not be reached,- move in state of constant flux
Product differentation ‘product life cycles’ extend w investment
25
Advertising monopolistic competition
Informal advertising- increases comp- providing consumers and producers with useful info abut g&s available to buy
Persuasive adv- decreases comp- customer become ‘captive consumer’ unwilling buy cheaper subs- may believe product is ‘must have’- pin self worth or perception of others
Saturation advertising- prevent small firms enter market as cant afford adverstising
26
Price competition in monopolistic comp
Decrease price in order to sell more g&s
Increase sales- consumers switch other market when price higher, or consumer switch business similar goods within same market
27
Non price competition monopolistic competition
Marketing comp- exclusive outlets- tied public houses, petrol stations, brewers and oil companies sell their products
Persuasive adv- product differentiation brand imagaes, packages
Quality comp- point of sale service or after sale service
28
Game theory
Study of strategic undersdtanding by firms that operate in interdependent markets
29
Dominant strategy
Strategy of a firm will undertaje to maximise own interests regardless of otehr players
30
Explanation game theory
3/3, 0/5, 1/1
Besr response of other firm is to change to a lower price- either 5 or 1
But if collude,both have high pruce, certainty at 3/3, higher profits, pareto optimal
31
Nash equilibrium
Equilibrium outcome of a game where there is no collusion
Outcome of all players making their optimal decision based on their assumption about rival reactions
Equilibrium situation as no reason for firms to change their strategy
32
Oligopoly
A market containing a few firms, imperfect comp industry, high level of market conc
Top 5 firms account for more than 60% of totla market shares
33
Conc ratio
Extent to which a market industry is dominated by a few leading firms
34
Key characteristics of an oligopoly
A market dominated by a few large forms
High market conc ratio
Each firm supplies branded products
Barriers to entry and exit
Interdependent strategic decisions by firms
35
Strategic interdependence
One firm’s output and price decisions are influenced by the likely behavoir of competitors
Cause high risk of tacit or explicit collusion- ead to allegations of anti-comp behavoir
36
Market conduct
Pricing and marketing policies persuaded by firms
Also known as market behavoir, not to be confuded with market performance
37
Firms in an oligopolistic- price rise
Rivals not assumed to follow
Thus acting firm will lose market share
Demand will be relatively elastic
Increase in price lead to decrease sales, decrease total rev
38
Firms price falls oligopoly
Rivals assumed to match a price fall
Avoid a loss of market share
Demand more inelastic
Fall in price, decrease total rev
39
Explanation price changes on oligopoly
Theory starts with assumption that firms are settled on p1,q1
If firm settled on one price, may be little point in changing
Even if costs change often see price regitity, stability in oligoply- sticky prices (seen as mc increase in gap but price not changing between mc1 and mc2
Increased imporatnce attached non price comp
40
Critics of kinked diagram
Sweezy- came up with
Stigler critic
emphasis on price rigity does not explain rpice itself
Assumes firms only follow price decrease, does not hold true empirically
Ignores non price comp among organisations
Ignores application of price leaders, cartels, accounts for larger that of oligopoly market
41
Prreditary pricing
Occurs when a firm attempts to force comp out of the market by setting low price
May be below ac in sr, likely to see increased output as demand is higher
42
Limit pricing
Occurs when a firm opperates below the profit max of mc+mr
Firms will starty to make a profit but potential entrants will be deterred from entering the market as lowe price means entry isn not possible
43
Business ofjectves
Profit max
Sales revenue max
Business growth/market share
Business survival in recession
Non for profit social enterpise
State owned business
44
Reasons for diff objectives
Managerial object9ivies- rev sales over profit max- bonus
Achieved satisficing profit/return to shareholders
Info constraints- ladk accurae info on marginal cost and rev- bounded rationality
Cost and pricing- ac and variable profits
Small business- lifestyle business
State owned corp- range diff econ social political obkectives
45
Profit max point
Firm can determine price at mc=mr
46
Pros of profit max
Provides greater wages and dividens for entreprenuers
Retained profit for r and d and more capital, saves paying high interest rates on loans
Sr interest rates averted shareholders most important, maxiise gain from frm
47
Cons profit maz
Firms may not be able to make decisions at the marzins- only buying one extra unit of materials
Bounded rationlaity- large complex firms may be unaware of extract marginal costs and erev as too much info
48
Maximisers
Traditional econ way, ainm to make best possible coocie from alternatives
49
Satisficers
Examine limited set alternatives and choose best
Rule of thumb rather complex pricing procedures- cost plus approcah
May be margins- increas rev/market share through pricee
50
Rev max point
Where mr=0
51
Rev max why
Baumol- manager controlled businesses
Annual salery more closely linked to sales revenue than operating prfits- divorce of ownership
Deter profitable entry of new firms/rivals
Coudl decrease price firms, operating profit lower
52
Sales max
Ar=ac
53
Sales max why
If struggle do as much as possible
Gaining market share- ie aldi
Economies of scale
Ie netflix 20201 20%
Supermarkets may have a lloss leader
54
Social enterprises
Businesses with profit reinvested for social aims- profit peple and planet
55
Most likely business objectives
Most satisficing
Larn from experience
Now more firm emphasise on social value and narrow meaning
Small business may profit max
56
Principle agent problen
Conflict from varying obkectives
Eg standard profit max, market rev- can deal with by ensuring financila rewards and incentives offered to managers are aligned with shareholder interests
57
Efficiency
A society making optimal use of scarce resources to help satisfy our changing needs and wants
Normallly market mechanism god at allocating these inputs there are occasions where the. Market can fail
58
Profuctive efficiency
No additional/max output can be produced from the factor inputs available at the lowest position available or unit cost
Av cost minimum
Ppf on curve
At lowest ac- where ac=mc
59
Allocative efficiency
Consuer satisfaction is max in profuction of gand s
P=mc=ar
On ppf but what point depeds on consumer preference
Draw in welfare loss
60
Economic efficiency
Allocative and productive efficiency at the same time p=ac=ar=min point ac
61
Static efficiency
Twhen all resources arre usd in the most efficient maner at a point in time (productive and allocative_
62
Dynamic efficiency
Firms improve technology and production methods over a period of time
63
Dynamic efficiency influenced by
R and d- innovation- likely to occur if abnormal profit for investment
Consumer will gain improve social welfare, investment in human and non human ccapital technological changee
Lead to better quality, higher standards imporvement in porducing and processes
64
Innovation
Commercially successful exploitatoion of ideas
Making an invesnntion commercially viable
65
Process innovation
Changes to the way in which production takes place or is organisaed
Change in business models and pricing stratedgu
66
Product innovation
Small scalee and fequent subtle changes to the characters and performance of a gand s
67
Creative destruction
Upheaval of established order in persuit of innovation
Schumpter- ie spotify over cd- easier and cheaper
Arbnb over hotels, less regulation
68
Socially efficient
Msb=msc
69
Monopolist and allocative inefficiency
Main case against monoply is that it maies higher profits at expense of a loss of allocative efficiency
May increase price to cover costs- meaning consuer needs and wants are not being satisficied as product is being under consumerd- case loss of consumer suprlus and will dispoprtionately effect lower income
70
X inefficieny
Occurs ween a firm doesnt produce at lowest possible ac
May be due to lazy employees or lack real competion meaning monopolist less of an incentive to invest in new ideas or consider consumer welfare
Any pojnt above ac
71
Rev max more reailstic business objective than profit max for many businesses
Loa- depends on strictire and size of firm- to a degree
Trad econ- firms seek to maximise make best possible from available options
Rev max
Profit max
Non profit max
72
Rev max more realistic than profit max- rev max
Seek max ref(sales -price) mr=0
Eg divorce of ownership pricniple agent problem
Manager as nonus with rev sales- baumol investigated this
Rectify by profit related bonuses
Try to gain market share0 aldi
73
Profit max- rev max more profit max
Seek max profit- total revenue-total cost_ mc=mr
Trad econ most likely
Greater wages/dividens
Retained profit source cheap finances- investment avoids interest rates
Apple market leader can set price- innovation schumpter creative disruption, ipod touch screen, easy to download
74
Not profit max- rev max more than profit max
Principle agent problem- shareholders not control- investment
Bounded rationality- large complex firms may be unable to access all finances, aware at margins- but more able for small firms
75
Non colusive oligopoly
In a comp oligopoly
Firms act indepentantly dont form agreements with each other
76
Cartel
Collusive agreement buy firms usually to fix prices
Sometiems there is also an agreemnt to restrict output and deter entry of new firms
Opec
77
Covert collusion
Collusion takes place in secret
Price coluson rigging markets
78
Tacit collusion
Understanding without an explicit agreement between firms
79
Overt collusion
Full public knoweldge
80
Imperfect comp markets
Firm lack accurate info
As outputs signif differ from those currently being rpoduced
Demand curve/ar is not actual- estimate
81
Aims of business collusion
Realise their mutual interdependance and act together- main aim max joint profts
Collusion dereased cost comp- eg expensive marketing wage
Reuces uncertainty
Increased profuts increases producer surplus/shareholder value
Enable inefficient firms to stay in business whihle other mroe efficient enjoy abnormal profit
82
Legal colluson
Eu comp authorities- practise not prohibited if they contribute to production .distribution of goods or to promote the productiion/distrubtion of goods or to promote improvement of technological process in a market
Development of improved industry stard of production and safety which benefit the consumer- joint industry standarrds for mobile phone chargers in europe
Info sharing designed to give better info for consumer
Research twin bventires- aid innovaion- pharma and covid
Eg citroen, peugot toyota allowed to collude or produce of these cars to decrease productionc osts and benefit from econ of scales - car essentially the same
83
Price fixing
[1 (above market price ) becomes cartel price
Makes supernormal profit- but may oversupplyu produce excess output to achieve higher profits- oversupply themselves across cartel
84
Price fixing/collusion easier when
Industry regulators are wekk
Penalties for coluson are low relative to potential gain
Participating firms have higher percentage total shares- control market supply
Firms can communicate well and trust each other- have similar strategic observations
Industry products are standardised and output is easily measurable- eg oil
Brands oversupply so that consumers wil not switch demand when cartel raises price
85
Wht do so many cartels break down
Decrease market demand in recessoin
Overproduction by some mm=embers
Exposuresure to conmpetitive checks- whistleblowing from former employee or former cartel members
Entry of non cartel firms to indusrty
86
Penalties for cartels in uk
Found n breach of comp law fines up to 10% worldwide turnover
Those convicted can get up to 3y improsnment or even up to 15y
87
Costs of collusive behavour
Damages consumer welfare- higher prices, loss consumer surpluys, loss allocatiev efficiency , hits lower income families/regressive impact
Absesnse of competition hits efficiency- x ineffeicny leads to higher unit costs, less incentive to innovate/loss of dynamic efficiencies, output quotas penalised firms who want to expand
Reinforce cartel- hard new businesses to enter
88
Potential benefits from collusion
General industry standards can bring social beefits- pharma, car safety research
Fairer prices for producer coop in lower and middle income developing componies- decrease rates with extra income generated
Profits have value- how used- capital investment, higher wages for employwrs, randd leading to dnamic effciency
89
Cma
Comp and markets authority
Independent body working to promote healthhy market ccomp in. And outside the uk, aiming to benefit the consumers
90
Roles cma
Monitor and investigate mergers
Protect consumers from unfair market practises
Fight against market carftels
Give recommendations to gov and regulators to benefit consumer
Hold exec personally responsible
High fines
91
Role cma- monitor and investigate mergers
To stop monpoply power or reducing comp
Blocked sainsbury and asda 2019 fearing reduce comp and increase price for consumers
92
Role cma- investigate market when a case of consumer or comp problem
Cancorelia and actavis accused of illegal agreement which enabled higher prices for a life saving dirg to be prolonged
93
Roles cma- hold exec personaly responsible
Libor price fixing- 12 years
94
Roles cma high fines
2012 major tv produceing companies 1.1bn pounds to several firms, for colluding in production of cathode ray tibes for increasing price tv sets - ie philips, samsung
95
Pure monopoly
Single supplier that determines the entire market
100% conc
96
Working monopoly
According tgo cma any firm with greater than 25% of toatl sales
97
Dominant firm-
Cma deams atleast 40% market share
98
Global monopolies
Microspoft aple amazon
99
Regional monopoly
Water industry with diff supplies key areas
100
Local monopoly
Rural pub or shop in village
101
Key featres of monopoly
Price setting market powwer- can set price ofr q but not both
Downward sloping mrar curves
Potential use of price discrimination
Barriers to entry exist- maintain supernormal (monopoly) profits in lr
Imperfect info is assumed
Profit max objective is assumed
102
Monopoly diagram
Mr and are downward sloping
Ac below mc
Supernormal profit and welfare loss
103
Econ case agianst monopoly
Prices higher than under comp conditions loss of allocative efficiency (p.mc)
Regressive effect on lower income hohsuehodls
Absense of genuine market comp may lead to productive inefficinecy- x inefficiency wastage produced and advertising spending, higehr pricces limit final output in a amrket and lead to fewer econ of scale being exploited
Less incentive to innovate- less dynamic efficieny
Monopoly may get too big- disecon of scale
Prevents new firsm entering
May use price discrimination- increasing producer surplus as expense of consumer surplus
104
Econ benefits of monopoly
Monopolies can reinvent supernormal profits into risky business investments- pharma, medical firms high risk but big
Monopolies generlaly large enough to compete with global companies
Spillover efect for wider market and eocn- reinvest to make more effciicent
Take advantage of econ of scale, which smaller companies may not be able to achieve
Decrease av cost for firms allow lower prices for consumers
105
Natural monopoly
V high fixed costs involved supply gands, lrac may fall continuously as output increases lr
Eg water company
Occur when high sunk costs- set up pipelines, build water purification facilities
As q increase cost decrease
Sunk costs act as a barrier to entry as diff for firms to raise finacial capital, fund a proect- little output
106
Legal barriers
Inhibit knoweldge other firms may have surrounding production or their capacity for production
Eg copyright- intellectual property, patent
Pharma obtain patent during development if grow only firm with patent to produce that drg
107
Control natural resources
Barrier to entry
Precuis metals and oil deposits
De beers controls vast majority diamonds- allow control output
Pther firms cannot exploit those natural resources
108
Contestable market
Low barriers to entry
Supernirmal profits to attract new entrants
Low barriers to exit
Low product loyalty, not to one brand so can jump
109
Baumol on contestable markets
Monopoly is defined by the potential ease or diff with which new firms may enter the arket
Industry conc (conc ratio) not a problem provided absence of barriers to entry and exit - creates the potential for new firms to enetr the makret
Existance of supernormal profits to act as a triggeer for new firms to enter the market
Assuming existing firms wish to prevent new entreants0 set limit pricing and prodduce at productive efficient (lowest on ac
110
Highly contestable markets
P.ac
High profit
111
Possible lt equlibrium for previously contestable markets
Ac=ar
Normal profit made
Retain sufficiently to keep factor inputs to present use- limit pricing
112
How monopolies create barriers to entry
Reduce profit levels below sr profit- normal profit limit rpicing
Constryct artificial barrier-s high advertising expense, predatory pricing
Hit and run behavoir- existing firms supernormal prifits and set price above entry limiit level, new entry will be prevented as long as there is a time lag ebtween entry and reactionary strategies from existing firms
Sgare of suypuernormal profits in intervening periof- new entrant can leave the market at leittle cost- no sunk costs in contestable markets
113
Problem with sunk costs
Cannot be recovered after- ie advertising
Act as barrier
114
Example contestable markets
Banking- increasing technology,peer to peer funding circles
115
Policies to increaase contestability
Removal of licences for transport, tv radio
Removal of controls over ownership- privatisation
Encourage growth of small firms wvia laosn sgrants subsidies
Strategic laws, prosecuting offences, impose larger fines ofn firms
Competition tendering- bid for contracts
116
Eval on contestable markets
Threat of new comp is often a powerful influence on behavoir of established firm
Highly contestable market willl resembel perfect comp- regardless no firms-since firms still behave as if inetsne comp
In reality usually sunk costs as it requires advertising to break into any market
May be asysmetrical info as incumbernt firms knwo more about karket and this is barrier to entry
117
Price leadership
Type of finformal collusive behavoir
Firm which is classed as a price leader- is largest or most prestigious firm in market- otehr firms may feel pressured to follow price
118
Incumbent firms may
Use strategic barriers to enrty such as predatory pricing or limit pricing to deter new entrants
119
Gov intervention for monopolies
Price regulation
Profit regulation
Quality standards
Performance targets
120
Gov intervention for monopolies- price regulation
Set price control to force monopolies to choose a price below profit max price- rpi-x (x represents expected efficiency of firm)
Better system is rpi-x+k (k being level of investment)- used in water industry and has allowed investment of 130 bn
Gives incentives for firms to be as efficient as possible in order to increase profits- helps to prevent excessive prices
Diff to knwo whre set x- rapid improvement in technolgy and because any info on what the efficinecy gains will be have to come from firm- asymetric info
121
Gov intervention for monopoles - profit regulation
Usa- rate of return regulation is used where prices aresety to allow coversion of operating costs and to earn a fair rate of return on capital invested- based on typical rates of rturn in comp markt
Aims to encourage investment andprevent firms from setting higherrpices gives firms incentive to employ more capital in order to increase profits
But since a reduction in costs will not imporve the firms since there is littel incenctive to be efficiennt- regulators need knwodleg of the indsurty and so will suffer from asymmetric info
122
Gov intervention for monopolies- quality standards
Can observe quality of gand s
Gas and electricity amrets regulators ensure eldeerly treated fairly esp in colder months
Post office has deliveries on daily basis to all areas
Electricity generators forced to have enough capacity to prevent balckouts
Require political will to ensure upheld
123
Gov intervention for monopolies- performance targets
Regulators can introduce yardstick comp- punctuality targets for train operating companies based on eurpe
Split a service into regional sectors to compare- water indsutry
Targets on price, quality, consumer choice and ocsts of production, imrpoves service and gains for consumer
Firms will resist the introduction of targets- required political wil and understanding- frims will attempt to find ways to meet targets when actually imposes it- change train tiems so not technically running late
124
Partial market failure
A market does function but it delivers the wrong q of good or service which results in resource misallocation
125
Missing market
A situation in which there is no market because the functions of prices have bronken down
126
Rival good
When one person consumes a private good, the q availble to others diminishes
127
Excludable good
People who are unprepared to pay can be excluded form benefitting form the good
128
Technological change and quasi public goods
Ie congestion charges can be emposed electronically when at peak and then not peak
Minimises free rider problem and inefficiency
129
Property right
The exclusive authority to determine how a resource is used
130
Regulatory capture
Occurs when regulatory agencies act in the interest of regulated firms rather on behald of consumers supposeed to protect
Ie director general of oflot agnecy regulates national lottery was caught accepting free air tickets and other ‘sweetners’ from one of lottery companies supposed to regulate
Also may occur without regulator ehaving irresponsibly - asymmetric info , regulator may rely on regulated industries. For info so may be lied to
131
For privatisation
Revenue raising- for state short term cash
Reducing public spending and gogv borrowing requirement- on lossmaking indsutries such as rover group on subsidies
Promotion of comp- break up of monopolies, with regulating agnecies to ensure
Promotioon of efficiency- profit incentive
Popular capitalism- extended share ownership to employees and other individ who had not prevuously owned shares
132
Case against privatisation
Monopoly abuse- transfers socially owend and accountable public monopolies into weakly regulated and less accountable private monopolies
Shot termism over long termism- in private eindustry may look to maximise shareolher industries
Underinvestment in maintaining the rail track and in technically advanced trains by privatised railway companies said to provide an example
Sold too cheeply form sate
133
A central feature of monopolistic comp is that products are differentiated. When firms try to fidderentiate their product by distinctive packaging and other promotional technqiues- known as
Marketing differentiation
134
Sticky prices why
If mc changes within verticle gap still chargess p1 (where kink kinks)
As oligopolistic firms profit max which is where mc=mr so mc remains equal mr as it is veerticle
135
Conclusion from oligopoly
Minimal incentive to change price as if increase lose market share and if decrease all others follow so dont increase in demand (inelastic)
But firms may try to reduce price- price war- eg supermarkets- matching aldi
Non-price competition- as wages are sticky, branding advertising- as seen with uk soft drinks market eg pepsi cola
Temptation to collude- so dont need to worry about how rivals react
136
High reinvestment from supernormal profits
Novartis swiss pharma spent 10bn. Rand d 2016 compared to revenues 60bn
137
High patent rates
Seen in bio and nano tech - 65 amd 62%
High cost rand d
Acts as barrier to entry
138
How conc ratio set out
X:y
X- number of largest firms
Y- market share they hold collectively
139
How performance of firms could be impacted by divorce of ownership
Decrease efficiency as attempt diff objectives- esp dynamic efficiency as lack of retained profit, lack innovation schumpter creative destruction
Disecon of scale- communications break down diff objectives
Financial performance as aim for diff objectives- eg rev not profit may be advance
140
How to resolve divorce of ownership
Renumeration schemes- profit related pay/shares
Use of baords, owners and shareholders make decisions on firm and vote in agm
141
Hwo to structure- discuss how the divroec of ownership rfrom conrol may affect both the conduct and perfomrance of firms
Intro- define divorce of owenrsip, conduct of firms, performance
Diff maximisers- trad profit but can also revenue and sales- show on idagram
How problem- impact conduct as principle agnt problem
-impact performance- efficiency disecon of scale and financial perofmrance
Solutions
- renumeration package
-shareholder boards
Overall may be problem but avoidable
142
Agianst monopolyu or firm large market share
Price is raisedd above marginal cost production
143
Complete market failure
Missing market
Public good not provided by state- non excludabel and no nrival free ride rporblem, exploitation
144
Partial market failure
Market not at optimum level- demerit or merit goods
Externalities
145
Economic welfare
Level of prosperity and quality of living standards in an econ
146
Points on ppf are efficinetly
Productive but not necessarily allocative
147
Why if ppf concave origin
Increasing amrginal opp costs
Increasng opp cost with increased output of a good
148
Types of market failure
Merit and demerit goods- externalities w them
Public goods
Tradgedy of commons
Income inequality
Monopoly power
Factor immobility
