Monopolies and Oligopolies Flashcards
(21 cards)
What are monopolies?
where a firm has 100% market share
What are features of monopolies?
Sells unique products with no close substitutes
Only exist when there are high barriers to entry to market
Acts as a price maker (can restrict market supply to force up price to max profits)
Make abnormal profits
What are the advantages of monopolies for the firm?
able to exploit Economies of scale so decrease average cost and can let them supply at lower prices
More innovation due to large profits allowing to fund research
able to generate abnormal profit
What are the disadvantages of monopolies?
for consumers
can charge higher prices as they can restrict output to force up prices
Restricts choice e.g. Thames water
Lack of innovation as no need to waste money on innovation due to being sole provider
How can monopolies protect their position?
They can enforce barriers to entry to prevent new firms from entering
What are natural barriers in monopoly markets?
Cost barriers: High costs to start up as monopolies have already exploited EOS
Legal barriers: The government prohibits competitors from entering the market
Marketing barriers: product differentiation needed
what are artificial barriers?
Barriers created purposely by monopolies to maintain their position
eg, patents
What are artificial barriers in monopoly markets?
Predatory pricing: When large firms cut their prices even if it means losing money to force smaller firms out. Once they are out they can raise prices again.
Cartels: If a group of firms have an agreement to work together to increase prices to the same
What is an oligopoly?
a market that is dominated by a few dominant firms e.g. car industry, supermarket industry
What is a market share?
A firm’s percentage share of the total market
What are features of oligopolys?
Few firms
Large market shares
Benefit from Barriers of Entry
**
Non-Price competition to try to avoid price wars**
Similar prices
Benefit from EOS
Collusion (where rival companies co-operate for mutual benefits)
What is collusion?
where rival companies co operate for mutual benefits
What are prices wars?
When one firms in the industry reduce price causing the others to do the same
What is interdependence?
When the actions of one firms will have a direct effect on others
What are the advantages of EOS in oligopolies?
-They can increase output and decrease LRAC
market power, sales –> pr_f_t
What are the advantages of Innovation in oligopolies?
-increased market power
-ability to create a new product yhyh
-more sales ygm cuz which leads to more profs, could be bc the good would be price inelastic
What are the advantages of price wars in oligopolies?
When one firm lowers price others are likely to follow causing lower prices for customers
What are the advantages of quality in oligopolies?
Due to high profit more money to spend in R and D which increases innovation and quality of products
What are the disadvantages caused by DEOS in oligopolies?
increased average cost due to firms being large. Lowers profits. Increases prices to make up for lost profit.
What are the disadvantages caused by collusion in oligopolies?
Collusion is where rival companies cooperate for their mutual benefit
Firms want to reduce competition and collude with other firms to do this. Products may become more expensive and less variety due to less competition.
What are the disadvantages caused by price wars in oligopolies?
for firms
firms can make significant losses leading to them having to leave the markzini
