Perfect Competition, Imperfectly Competitive Markets And Monopoly Flashcards
What is market structure
This is the organisational and other characteristics of a market
Important features of market structure include:
The number of firms in the market
The market share of large firms
The nature of cost incurred by the firms in the market
The nature of the sales revenue earned by firms in the market
The extent to which there are barriers to entry to, exit from the, the market
Ease of access to information about what is going on in the market
The extent to which firms in the market undertake product differentiation and adopt different price setting procedures
Characteristics of perfect competition
Large number of buyers and sellers
Woth perfect market information
Able to buy/sell as much as they wish at the ruling market price
Unable to influence the ruling market price
Uniform product
No barriers to entry or exit in the long run
What are the various forms of imperfect competition in market structures
Monopolistic
Oligopoly
Duopoly
Characteristics of monopolistic competition market structure
There are many producers and many consumers
Consumers are aware that there are non price differences among products
Producers have some control over price - they are price makers not price takers but price elasticity would be high
Barriers to entry and exit are low
- lots of firms in and out the market to gain supernormal profits
Learn monopolistic diagram
What is an oligopoly
It is an imperfect market structure with a high level of market concentration
A market structure dominated by a small number of very large firms
What are the characteristics of an oligopoly
Interdependent strategic decision making by firms within the industry - Looking at their competitors
Periods of price rigidity (sticky prices) - not much price change
Intense non price competition especially branding, customer service ect
Occasions when firms might decide to collude and fix market prices
High barriers of entry and exit
Dominated by a few large firms
High market concentration ratio
Main aspects of non collusive competition in an oligopoly
All behaviours by a business in an oligopoly will depend on their aims such as:
Maintaining normal profit
Protecting their market share from established competitors
Growing economies of scale
Reacting to decisions made by rival firms
What can cause price wars to break out in an oligopoly
Collapse of cartel agreement
If existing firms are pricing too high making supernormal profits
Desire to win market share
Entry of new firms/ challenger brands
Managerial motives - if price cuts increase total revenue- managers willing to sacrifice market share at expense of operating profits
Response to external factors such as falling demand in a recession
