4. Market Structures: Paper 1: OCR A-level Economics Revision and Macroeconomics

Perfect Competition

A market with many buyers and sellers selling homogenous goods with perfect information and freedom of entry and exit.

Monopoly

A single seller in the market.

Dynamic Efficiency

Efficiency in the long run; concerned with new technology and increases in productivity which causes efficiency to increase over a period of time.

X-inefficiency

When firms produce at a cost above the AC curve.

Natural Monopoly

Where economies of scale are so large that not even a single producer is able to fully exploit them; it is more efficient for there to be a monopoly than many sellers.

Price Discrimination

When a monopolist charges different groups of consumers different prices for the same good or service.

Monopolistic Competition

Where there are a large number of buyers and sellers who are relatively small and act independently, selling non homogenous goods.

Oligopoly

Where a few firms dominate the market and have the majority of market share, they act interdependently.

Non-price Competition

When firms compete on factors other than price, for example customer service or quality; they aim to increase the loyalty to the brand which makes demand more inelastic.

Interdependent

The actions of one firm directly affects another firm.

Collusion

Occurs when firms agree to work together, for example by setting a price or fixing the quantity they produce.

Overt Collusion

Collusion where firms come to a formal agreement, for example a cartel.

Tacit Collusion

Collusion where there is no formal agreement, such as price leadership.

Non-collusive Oligopoly

When firms in an oligopoly compete against each other, rather than making agreements to reduce competition.

Concentration Ratio

The combined market share of the few top firms in a market.

Game Theory

Used to predict the outcome of a decision made by one firm, which is has incomplete information about the other firm.

Contestable Market

When there is the threat of new entrants into the market, forcing firms to be efficient.

Perfectly Contestable Market

A market with no barriers to entry, where a new firm can easily enter and compete against incumbent firms completely equally.