3.1.4.5 THE COMPETITIVE MARKET PROCESS

How many sellers are there in a monopoly?

1

A working monopoly has to have how much market share?

Over 25%

How many firms are in an oligopoly?

A few dominat firms

How many firms are in a duopoly?

2

Is this a characteristic of a competive market a monopoly market?

A dominant firm is a firm controlled at least 40% of their given market

Monopoly

Is this a characteristic of a competive market a monopoly market?

Many small firms

Competitive

Is this a characteristic of a competive market a monopoly market?

Sellers produce slightly differentiated products given consumers plenty of choice

Competitive

Is this a characteristic of a competive market a monopoly market?

One firm often has price setting power

Monopoly

Is this a characteristic of a competive market a monopoly market?

Consumer loyalty to establish businesses is fairly weak

Competitive

Is this a characteristic of a competive market a monopoly market?

An allocative inefficient outcome is likely

Monopoly

Is this a characteristic of a competive market a monopoly market?

Consumers and sellers have full information about prices so that it is easy for buyers to find the seller offering the best value for money

Competitive

Is this a characteristic of a competive market a monopoly market?

The barriers to entering the market are high prevent preventing new firms to come into the market in pursuit of profit

Monopoly

Draw a diagram to show pricing and output under monopoly and competitive market conditions

What are two barriers to entry which protects monopoly power in a market?

1. High start up costs

2. Legal barriers

Why do these barriers make it harder for new smaller firms to enter the market?

It is expensive and legally hard

It ensures that monopolies maintain market power and supernormal profits

What is an example of high barriers to entry in a monopoly market in the real world?

National Grid controls electricity in the UK. New firms are unlikely to enter, as building a new grid would cost billions

Apart from firms competing on price, what else do they compete on?

• improving product quality

• investing in innovation

• customer service

• strong branding/loyalty

Give an example of firms competing closely in the real world?

Smartphones

• Apple

• Samsung

What type of things do smartphone companies compete on?

Cameras, battery life, processing speed

What do large firms benefit from?

Economies of scale - helps lower costs overtime

What two companies are planning a merger in the UK?

E.ON and Ovo energy

If these two energy companies merged, how much market share would they hold?

28%

What would some potential disadvantages be to the consumer of merging of two huge energy companies?

• higher prices (less competition and less substitutes)

• less choice for consumers (fewer suppliers)

• reduced incentive to improve service

• barriers to entry increases

What may limit effects to consumers when merging businesses?

CMA - competitive market authority