Key words test

Anti-competitive behaviour

Strategies such as predatory pricing that are designed to limit the degree of competition inside a market.

Barriers to entry

Factors which make it difficult or expensive for new firms to enter a market to compete with existing suppliers.

Barriers to exit

The costs associated with a decision to leave a market/industry, such as lost goodwill, redundancy costs, and the reduced value of equipment sold in a fire-sale.

Cartel

A formal agreement between businesses to take actions that will limit competition between them; they are a form of overt collusion.

Collusion

When rival companies cooperate for their mutual benefit, often involving agreements to fix prices or output.

Contestable market

A market where an entrant has access to all production techniques available to incumbents and entry decisions can be reversed without any costs.

Divorce of ownership and control

This occurs when the owners of a business do not control the day-to-day decisions made in the business.

Game theory

A mathematical technique used to analyse the behaviour of firms in situations where there is interdependence.

Hit-and-run entry

Occurs when a business enters a market to take advantage of short-run supernormal profits and then leaves once these profits are exhausted or prices fall.

Homogenous goods

Products that are standardised - they are more or less identical to each other.

Interdependence

When the actions of one firm have an effect on its competitors; a key feature of an oligopoly.

Kinked demand curve

A model of an oligopoly market structure which assumes that a firm faces a dual demand curve for its products based on the likely reaction of other firms.

Limit pricing

A pricing strategy where products are sold at a price low enough to make it unprofitable for other players to enter the market.

Monopolistic competition

A low-concentration market structure with many competing firms each of whom supplies a slightly differentiated product and where barriers are low.

Monopoly power

Selling power arising from a firm having a large enough share of the industry to be able to set prices.

Natural monopoly

Exists when the most efficient number of firms in the industry is one; the long run average cost curve falls continuously over a large range of outputs.

Oligopoly

A market dominated by a few large suppliers where market concentration is high (typically leading five firms taking over 60% of sales).

Overt collusion

Formal and open agreements between firms to undertake actions likely to minimise a competitive response.

Perfect competition

A market with many competing firms and no entry barriers where each product is homogenous and no single firm has control over the market price.