Market Power and Market Failure

Flashcards covering key terms and concepts related to market power, market failure, and the influence of monopolies and trade unions.

Market Failure

Occurs when the market does not efficiently allocate resources.

Significance of Market Power

Includes cartels, collusion, restrictive practices, tacit agreements, monopsony power, natural monopolies, and power in the labor market.

Collusion

When firms in an oligopolistic market agree to act as one firm to benefit from elements of monopoly.

Oligopoly

A market structure in which a few firms dominate.

Cartel

A formal agreement between firms to collude in the operation of the market, normally involving price fixing or output levels.

Price Leadership

Common in oligopoly, where the dominant firm sets the price and other firms follow suit.

Monopsony

Occurs when there is only one buyer in the market.

Oligopsony

Describes a market with a few buyers.

Natural Monopoly

Conditions where continual returns to scale lead to an L-shaped LRAC curve and significant barriers to entry.

Trade Unions

Organizations in the labor market that use collective bargaining to influence wages and employment levels.

Collective Bargaining

When a trade union negotiates with an employer on behalf of all employees.

Industrial Action

Activities designed to reduce productivity in the workplace to persuade employers to accept union demands.