Economics - Market Dominance

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  • Created by: Sophie
  • Created on: 01-06-13 20:49
Market share
The percentage of all sales within a market which are held by one brand or company
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Monopoly
Firm or one of a small number of firms that controls a significant share of the market which it operates
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Barriers to entry
Factors that obstruct or restrict entry to an industry or market
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Dominant firm
When one producer controls supply of a good or service and where entry of new producers is prevented or highly restricted
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Merger
The voluntary combining of two or more firms into one
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Takeover
Where one firm gains control of another by purchasing 51% or more of its shares. This may be friendly or hostile.
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Economies of scale
Reduction in unit cost of production. One example of this is large companies buying in bulk and benefiting from reduced prices
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Brand
Name, term, design, symbol or any other feature that identifies one seller's product distinct from other sellers
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Regulation
Rules set by the government or their agencies that seek to control the operation of firms who may have monopoly power in their own industry
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Examples of barriers to entry
Sunk costs, economies of scale, brand loyalty, advertising and marketing, predatory pricing, research and development, patents, national/ geographic barriers
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Predatory Pricing
Prices are deliberately set very low by a dominant competitor in the market in order to restrict or prevent competition. The prices may even be free or lead to losses by the dominant company.
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Positive effects of market dominance on consumers
Wider range of products, Lower prices, Larger amount of stock in one place, Better Quality
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Negative effects of market dominance on consumers
Less choice, Force higher price on consumers, Low quality
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Positive effects of market dominance on suppliers/ producers
Offers financial security, Offers services to make their producers/ suppliers more efficient, Advertises suppliers and producers, They give producers a ready market for their goods
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Negative effects of market dominance on suppliers/ producers
Bully them into lowering prices, Suppliers/ producers become dependent, May make producer modify their product to fit their standards
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Government regulation of monopoly
Merger policy, Office of fair trading, European Competition authority, Utility regulators
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Merger Policy
The competition commission can investigate a merger to see if it is in the public interest. If the commission thinks the new firm will have too high a market power and will act against public interest, the merger wont be allowed
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Office of fair trading
Can intervene if firms abuse their dominant market share position. Unfair practices include: Collusion/ Cartel - agreeing with other firms to artificially raise prices, Restricting competition, Tied in sales - excess prices or predatory pricing
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The European competition authority
Examines anti-competitive behaviour, mergers and takeovers between European businesses and investigates state aid to struggling businesses to make sure subsidies do not reduce or distort competition.
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Utility regulators
Ofgem, Ofcom, Ofwat monitor industries privatised during the 80s and 90s. The regulators have used the power to introduce and review price capping and have sought to bring fresh competition into markets such as telecommunications, gas and electricity
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How can the Government encourage competition?
Prevent mergers which create too much market share, Split up firms which are too big, Prevent collusion which restricts competition, Deregulate state monopolies and allow new firms to enter market, Ensure new firms have access to key infrastructure
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SPEW
Service, Prices, Efficiency, Welfare
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Other cards in this set

Card 2

Front

Firm or one of a small number of firms that controls a significant share of the market which it operates

Back

Monopoly

Card 3

Front

Factors that obstruct or restrict entry to an industry or market

Back

Preview of the back of card 3

Card 4

Front

When one producer controls supply of a good or service and where entry of new producers is prevented or highly restricted

Back

Preview of the back of card 4

Card 5

Front

The voluntary combining of two or more firms into one

Back

Preview of the back of card 5
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