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Economics Topic 4
Spectrum of competition
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Created by
Baldev Rana
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Cards (37)
Monopoly
Market structure with a sole
seller
, high barriers to entry, and
price
maker
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Monopoly Power
Market dominance with more than
25
% market share, leading to
influence
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Profit Maximisation
Objective of
monopolies
to maximize profits in
short
and long run
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Price Discrimination
Charging different
prices
to different customers for the same
product
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Barriers to Entry
Factors
hindering
new firms from entering a market, maintaining
monopoly
power
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Economies
of
Scale
Cost
advantages as firms grow larger,
discouraging
new entrants
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Limit Pricing
Setting prices below
new entrants' production costs
to deter
entry
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Sunk Costs
Unrecoverable
costs like advertising deterring new firms from
entering
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Brand Loyalty
Consumer
loyalty
to a brand, making it hard for new
firms
to compete
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Set-up
Costs
Expensive initial costs of establishing a firm,
discouraging
new entrants
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Advertising
Can increase consumer
loyalty
and create
barriers
to entry
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Product Differentiation
Distinguishing a
product
through quality, pricing, and
branding
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High barriers to entry and exit
Obstacles that make it difficult for new
firms
to enter or leave the
market
, reducing competition
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High concentration
ratio
Scenario where a few firms dominate the market, leading to
reduced
competitiveness
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Interdependence of firms
Mutual reliance
among firms where one's actions impact another's behavior in an
oligopoly
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Product differentiation
Strategy where firms
distinguish
their products through branding,
influencing
market competitiveness
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Imperfect competition
Market scenario where firms are
profit maximizers
in the short run, selling
non-homogeneous
products with close substitutes
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Cross-price elasticity of demand
(
XED
)
Measure of how the quantity demanded of one good changes in response to a change in the price of another,
high
in markets with product
differentiation
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Monopolistically
competitive market
Market structure with many small buyers and sellers,
weak
market power, non-price competition, and
imperfect
information
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Price setting power
Ability of firms to
increase
prices without losing all customers due to a
downward sloping demand curve
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Imperfect information
Situation where buyers and sellers lack complete
knowledge
about market conditions in
monopolistically
competitive markets
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Perfect competition
Market with many buyers and sellers, price takers, and perfect knowledge
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Price determination
Price set by demand and
supply
interaction in a
competitive
market
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Supernormal profits
when a firms total sales
revenue
exceed the total
costs
of production
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Allocative efficiency
Achieved when price equals
marginal cost
(P =
MC
)
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Dynamic efficiency
Long-run
efficiency but limited due to lack of
supernormal
profits
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Cost plus pricing
Setting prices based on
unit cost
to ensure
cost coverage
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Price
skimming
Setting
high
prices initially for new products with
little
competition
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Penetration
pricing
Setting
low
initial prices to attract customers and gain
loyalty
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Predatory pricing
Setting
low
prices to drive out competitors, then
raising
prices
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Psychological
pricing
Using emotional reactions to price, e.g., pricing at
99p
instead of
£1
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Unique Selling Points
Factors influencing
premium
pricing for
unique
products
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Price elasticity of demand
Determines pricing based on
responsiveness
to
price changes
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Product life cycle
Different
pricing
strategies based on product
stage
(launch, growth, decline)
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Product differentiation
Distinguishing products through branding,
packaging
, and
advertising
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Non-price competition
Competing through factors other than
price
, like branding and advertising
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Distribution methods
Influencing demand
elasticity
by controlling product
distribution
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