1.4 Competitive and Concentrated Markets

What is an artificial barrier to entry?

Barriers to market entry that are man-made, i.e., non-natural.

Define collusion in an economic context.

Illegal cooperation between multiple firms, forming a cartel.

What is a concentrated market?

A market with very few firms, potentially as few as one.

What does the concentration ratio measure?

The total market share of the leading firms in an industry as a percentage of total output.

What is the purpose of an entry barrier?

To make it impossible or more difficult for firms to enter a market.

What is an exit barrier?

Factors that make it impossible or more difficult for firms to exit a market.

Define imperfect competition.

Any market structure between the extremes of perfect competition and a pure monopoly.

What is innovation?

Improving upon an existing product or process.

Differentiate between invention and innovation.

Invention is the creation of a new product or process; innovation is improving upon an existing one.

What is limit pricing?

Lowering the price of a good or service to around average cost to create an artificial barrier to entry.

What does market share maximisation mean?

When a firm maximises their percentage share of the market in which it sells its product.

What is the definition of market structure?

The characteristics of a market.

Explain monopoly power.

The ability of a firm to be a price maker rather than a price taker; the ability to set prices.

What is a natural barrier to entry?

Barriers to market entry that are not man-made.

What is a natural monopoly?

When the ideal number of firms in an industry is one.

What defines an oligopoly?

A market dominated by a few firms.

What is a patent?

Government legislation protecting a firm's right to be the sole producer of a good.

Define predatory pricing.

Temporarily lowering a good's price below average cost to create an artificial barrier to entry.

How does price competition work?

Reducing the price of a product to strip demand from competitors.

What is the difference between a price maker and a price taker?

A price maker is a firm with monopoly power that can set prices; a price taker is a firm that passively accepts the market price.

What is product differentiation?

Differences between multiple similar goods and services.

What is profit maximisation?

Occurs where the positive difference between total revenue and total costs is at its highest.

Define pure monopoly.

Only one firm exists in a market.

What does sales maximisation mean?

When sales revenue is at its highest.