Market Structures

Question 1

State + explain the micro effects of different market structures.

Answer 1

• Allocative Efficiency: in concentrated markets (i.e. monopoly) tend not to see, however do see in competitive markets.
• Productive Efficiency: in concentrated markets (i.e. monopoly) tend not to see, however do see in competitive markets.
• X-Efficiency: in concentrated markets (i.e. monopoly) tend not to see, however do see in competitive markets.
• Anti-Competitive Markets: in many concentrated + contestable markets, firms may act anti-competitively, using anti-competitive strategies (e.g. mergers, predatory pricing, limit pricing, flooding market, etc).
• Price Discrimination: prevalent in monopoly markets.

Question 2

State + explain the macro effects of different market structures.

Answer 2

• Dynamic Efficiency + LRAS: dynamic efficiency gains - impact on LRAS, long-run growth, productivity.
• Jobs: in competitive markets, often see job creation - L as a derived D - when Q is high in competitive markets, see more jobs created - link to employment as a macro objective.
• Productive Efficiency + LRAS: in competitive markets, see huge exploitation of EoS - boosts productive efficiency + LRAS.
• Competitive Markets + Poverty Alleviation: in competitive markets, because P are low - affordable + consumer surplus is high - good for living standards + for those on lower incomes - in a sense deals with income inequality.