Monopoly
o More than 25% market share gives firm monopoly power
o Earns supernormal profits
o Profit maximisation
o Price maker
o Price discrimination
o Sole seller in market (pure monopoly)
o High barrier to entry
o Monopoly power can be gained if there are multiple suppliers
o Few examples of pure monopolies
Public utilities
Gas
Water
Electric
o Barrers to entry
Economies of scale
Produce for much cheaper
Limit pricing
Set certain prices so you have control
Owning a resource
Brand loyalty
Setup costs
Sunk costs
Unrecoverable costs such as advertising deter firms from markets.
Number of competitors
Advertising
Degree of product differentiation
Oligopoly
o Multiple big companies that dominate a particular sector of the market.
High barriers to entry and exit
High concentration ratio
Independence of firms
Product differentiation
Imperfect competition
, o Characteristics of an economic market doesn’t fulfil necessary conditions of a perfectly
competitive market.
o Level of competition between sellers
o Monopolistically competitive market has imperfect competition
o Firms sell nonhomogeneous products due to branding
o Compete on price
o Hairdressers have monopolistic competition
o Price makers
o Heterogeneous products (differentiated)
o 1 seller many buyers
o High barriers to entry
o Price makers
Perfect competition
o Theoretical market structure where competition does not exist between firms or sellers
o Ideal market scenario as it allocates the available resources most efficiently.
o Pure competition
Many buyers & sellers
Sellers are price takers
Prices are unanimous everywhere
Free to enter and exit market
No barriers
Perfect knowledge
Everyone is aware what is happening.
Homogenous goods
All products are the same
Firms are short run profit maximisers
FOP is perfectly mobile
Turn one thing into another without wasting time or money
Transition from farming to manufacturing
Price determined by interaction of supply & demand
Profits likely to be lower
o How the model of perfect competition helps to explain how markets work?
Rare to see an example of perfect competition in the world
Commodity markets are close to the model as they are homogenous
Profit maximisation equilibrium in short term & long term
Short term = super normal profits
Long term = normal profits
Short run equilibrium with perfect competition
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller henryquinn. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £7.49. You're not tied to anything after your purchase.
