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Flashcards in Market structures Deck (13):

explain the kinked demand curve

theory assumes oligopoly firm raising price will suffer loss of business; firms have no incentive to change price - demand curve elastic at higher prices and inelastic at lower


what is the Nash equilibrium

where both firms choose the dominant strategy - where neither trusts the other


give examples of non price competition

quality of customer service, longer hours, discounts, bogus techniques


give an example of collusion not being bad

FA premier league - protects its smaller clubs, brings more money into football, more cost effective if they don't all negotiate their own television deals


when does a pure monopoly occur

when one company is a single source for a product and there are no close substitutes for the product available


what did Liebenstein comment on allocative efficiency?

allocative inefficiency in a monopoly is less important than the x inefficiency


what is first degree price discrimination

charging every consumer the highest price they are prepared to buy at e.g. ebay


what is second degree price discrimination

when a firm has surplus capacity and can target consumers at a lower price


what is third degree price discrimination

distinguishing between sub-markets - only works if these sub markets have different demand curves


should monopolies advertise?

yes: helps maintain barriers of entry, shows it's nice to consumers
no: wasteful, only worthwhile if increase in total revenue exceeds increase in total costs from ads


what does price discrimination do to consumer and producer surpluses?

consumer surplus reduced, raise producer surplus


where do you draw profit/losses?

between AR and AC


what is the difference between SR monopolistic competition and LR?

- prospect of earning supernormal profit attracts new entrants
- new firms now compete with new substitutes
- this creates an inward D curve shift, eliminating supernormal profits