Competition Law Basic Economic Principles

Pure monopoly

is a market with only one seller

Natural monopoly

when economies of scale are so great that it is more efficient (lower cost) for only one firm to produce all the output

Oligopoly

A market structure in which a few large firms dominate a market ("concentrated market")

Economies of scale

occurs when the average cost of producing a commodity falls as more is produced

Economies of scope

occurs when it is cheaper to produce two different products jointly than each separately

Negative externalities

uncompensated costs imposed on third parties

Positive externalities

benefits enjoyed by those who have not paid for them

Two-sided markets

In these markets the firms have to compete simultaneously for two groups of customers, and a network effect arises as more consumers join one of the markets

direct network effects

when a value of a product increases with the number of customers consuming the same product (e.g. social media, telephones)

indirect network effects

when a value of a product increases with the number of people consuming another product