Market structures and competitive behavior in transport markets

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  • Created by: Munibah
  • Created on: 05-04-13 17:19

-Consists of buyers and sellers of transport services, best analyzed as a collection of sub markets.
-Basic distinction between passenger transport and freight transport. The main modes of transport can be applied; in turn, sub markets based on the length of haul or journey canbe incorporated.
-From a business perspective firms may operate in one or more of these defined sub markets, eg. Virgin trains & airline.

-The way in which a market is organized, in terms of how many firms they are, how they vary in size and whether firms produce goods or services that are close substitutes.
-Economists recognize four main market structures: PERFECT COMPETITION / MONOPOLISTIC COMPETITION / OLIGOPOLY / MONOPOLY
-PERFECT COMPETITION: number of firms = many / size of firms = very small / barriers to entry = none / type of product = same or homogeneous / firms influence on price = price takers / benchmark by which other structures can be evaluated from an efficiency standpoint.
-MONOPOLISTIC COMPETITION: number of firms = many / size of firms = small / barriers to entry = few / type of product = differentiated / firms influence on price = price makers / Normal profits only in long run, firms are not allocatively or productively efficient.
-OLIGOPOLY: number of firms = dominated by a few / size of firms = large / barriers to entry = high / type of product = varied, eg. Branding / firms influence on price = price makers / firms are often interdependent. Occasional price wars. Heavy non price competition.
-MONOPOLY: number of firms = one / size of firms = variable / barriers to entry = very high / type of product = no close substitutes / firms influence on price = price makers / often now seen as a firm with 25% market share. 40% market share = dominant monopoly.

The degree of competition tends to be determined by two characteristics:
-Barriers to entry: the extent to which it is possible for new firms to enter the market. These tend to be varied and often substantial, meaning that transport markets are often not as competitive as they might seem to be. Barriers to entry become more effective in oligopoly and monopoly.
-The number of firms: in contrast, the two competitive market structures are characterized by large numbers of invariably small firms. This is conducive to competition and an efficient allocation of resources. As the number of firms in a market increases, so does the competition between them. Few firms usually means there is less competition in the market.

Over the years, transport markets have grown in size and barriers to entry have become more of an obstacle for new firms, these include:
-High set up costs: although firms often lease expensive transport vehicles,the cost of entry into the rail passenger and air transport markets is formidable. A fleet of vehicles is invariably needed if a new firm is going to make any impact when in…



hi, i'm doing gcse economics and one of our research topics is dominant firms. i was wondering if you could help with a few aspects?


Hey, yeah.. What exam board are you on? And what would you like help with? 

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