Competition Law

Competition

 ‘The activity or condition of striving to gain or win something by defeating or establishing superiority over others.’ - Oxford Dictionary 

Competition law

Competition law is the area of law that aims to prevent or mitigate the negative effects of cooperation between (competing) firms and unilateral conduct by firms with substantial market power which restricts the operation of competition on a market.

Scarcity

When there is less of something than necessary to satisfy everyone’s needs.

The consumer

‘A purchaser of goods and services for the personal satisfaction of themselves or other members of their households, as distinct from use to generate further income.’ (Oxford Dictionary of Economics)

Final customers

An individual or entity that buys and uses a product or service for personal or non-business purposes, representing the absolute end of the supply chain without reselling it or using it as an input to produce other goods.

The characteristics of the product

How much you want the product [‘preferences’]

Price of substitutes

Alternatives you would contemplate

Price of complements

Other goods you would also need

Fixed costs

Costs which do not vary with output, only fixed in short run.

Variable costs

Costs which do vary with output.

Marginal cost

Cost of producing one extra unit.

Marginal Revenue

Increase in revenue from selling one more unit of a product. 

Profit = Total Revenue – Total Costs

Normal profit: Total revenue = Total costs (so basically ‘break-even’)

Supra-normal profit: Total revenue > Total costs

Consumer surplus

The aggregate difference between the actual price paid by consumers and the maximum price they are willing to pay (reservation price) for a given good.

Producer surplus

The aggregate difference between actual price of goods sold by producers and the marginal cost of producing those goods.

Total surplus

The sum of consumer surplus and producer surplus.

Productive efficiency

Production of products at lowest possible cost.

Allocative efficiency

Optimal distribution of products, according to the preferences of buyers and sellers – no one can be made better off without making someone else worse off.

Dynamic efficiency

Innovation of products and production processes – making the next generation better off.

Perfect competition

The market structure where a vast number of small firms sell identical products, and no single buyer or seller has the power to influence market prices

Price Takers

Individual firms must accept the equilibrium price set by total market supply and demand.

Price Setter

A firm with enough market power to influence the price of its product by changing its output level.