Market structures Flashcards
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
