A dominant firm in a market-- owns more than 25% of the market share. They have an inelastic PED.
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When can a monopoly occur?
When one business dominates the market, unique products are produced, they can charge whatever price they want.
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What is a barrier to entry?
Something that stops firms from entering the market.
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What are legal barriers?
They stop firms from producing or selling certain goods.
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What are patents?
Gives firms the sole right to produce a good/service over a period of time.
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What are marketing budgets?
Consumers are more aware of the benefits of the product and are more likely to buy it.
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What is technology?
The cost of large machinery can prevent firms from entering.
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What are high start up costs?
It costs a lot to enter a market-- especially capital costs.
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How is achieveing an economy of scale affect a monopolist?
Makes the firm more efficient, which lowers the average cost of production, therefore it can charge lower prices to firms in competitive markets.
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How can using retained profits affect a monopolist?
Invest in research & development, creates innovation, leads to better processes, lowers LRAC, better quality goods.
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What is an oligopoly?
Exists where there are only a few firms in the market, they can exploit consumers, takes into account reactions of competition when making decisions regarding pricing, they tend to compete on non-price competition, like promotion.
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What may oligopolies do together?
Work together for their own benefit--split delivery costs.
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What are the advantages for consumers of oligopolies?
How are innovative products an advantage to consumers?
Better quality and choice in context to a monopoly.
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How is reinvesting profit an advantage to consumers?
They can train employees, invest in research & development, better efficiency etc.
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How are price wars an advantage to consumers?
Can lead to lower prices for consumers.
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WHat are the disadvantages for consumers of oligopolies?
Reduced choice, pricemakers, reduced competition, adverts can manipulate consumers, they can collude--which reduces choice, cartels are formal agreements between firms.
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Other cards in this set
Card 2
Front
When can a monopoly occur?
Back
When one business dominates the market, unique products are produced, they can charge whatever price they want.
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