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Lecture notes 4.2.1 Markt Power & Failure £7.49   Add to cart
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  3. PEARSON (PEARSON)
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  5. Economics B
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  7. Unit 4 - Making markets work

Lecture notes

Lecture notes 4.2.1 Markt Power & Failure
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These notes helped me get an A* in A Level Economics, covering all aspects of the specification, plus hints of real world context.

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  • June 15, 2023
  • 2
  • 2022/2023
  • Lecture notes
  • Paddingtion zinzombe
  • All classes

Subjects

  • 411 spectrum of competition 412 barriers to

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4.2.1 Markt Power & Failure

 Collusion
o Collusion more likely to happen when fewer firms in the market
o Firms in oligopoly are most likely to collude as there are more incentives
o Overt Collusion
 Formal agreements made between firms.
 Works best when there are only few dominant firms so one does not refuse
 It is illegal
 Leads to price fixing
 Profit maximisation and reduced competition
o Tacit Collusion
 Non formal agreement but still colluding
 Price wars
 Cartels
o Group of two or more firms who agree to control prices, limit production
o Leads to higher prices for consumers and restricts output
o Divide market for own benefit
o Stops them competing against themselves
 Price Leadership
o One firm changes their prices and other firms follow
o Usual occurs by the most dominant firm in market
o Other firms are often forced to change their prices
o If don’t change prices they risk losing market share
 Price wars
o Firms continue to cut it lower than their competitors
o Repeats in a cycle until it cannot go any lower
o Firms that do not have economies of scale cannot compete so forced out of market
o Benefit customers
o Affects businesses
o Non-Price Competition
 Aims to increase the loyalty to a brand
 Makes demand for a good more price inelastic
 Makes firms focus on quality and customer service
 Keep shops open longer as it is more convenient for consumers
 BOGOF or discount deals attract customers
 Barriers to entry
o Try and drive the competitors out of the industry to increase their own market share
 Monopsony power
o Single buyer in a market
o Supermarkets have monopsony power when buying from farmers
o They are profit maximisers
o Able to negotiate lower prices
o Can set the market price

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