econ 12 - chapter 6 (monopoly and imperfect competition)

perfect competition

a market structure with many sellers and many buyers of standard product

ex: roadside flower stalls, fish market, food stalls on the roadside in Kudat

monopolistic competition

a market structure with many sellers and many buyers of slightly different products.

easy entry and exit to the market. COMMON IRL

ex: restaurants, clothing services

oligopoly

a market structure where there are only a few businesses offering standard/similar products.

entry to the industry is difficult. very common in canada.

ex: banking, telecom, airlines

monopoly

a market structure where there’s only 1 business supplying a product with no similar substitutes and restricted energy to the industry in common regions.

ex: BC Hydro, ICBC (usually government owned entities)

Monopoly Demand Curves

downward sloping. curve represents the entire market.

company has ability to influence price because they’re the only company

Monopolistic Competition Demand Curve

downward sloping demand curve

demand is elastic because there’s substitutes.

Kinked Demand Curve (Oligopoly)

relies on mutual interdependence (relying on one another to achieve the goals)

each business contributes a lot to the market.

can operate as rivals or fellow players

It is elastic when it’s above the kink — competitors won’t follow price changes as raising price will lose customers (competitors gain customers)

When it’s below the kink, it is inelastic — competitors will follow price changes as lowering prices will gain customers (to make switch less dramatic, prices will lower too)

Oligopoly Rivals

Rivalry comes from wanting to maintain market share. But we must consider the reactions of competitors to price changes and how responses will impact their market share.

Ex: If Air Canada starts charging to bring a carry on, how many people will switch to WestJet? Will WestJet increase their ticket price while maintaining a free carry-on to take advantage of the extra business?

The idea is that companies in an oligopoly are always thinking about what their competitors will do in response to their actions, because it can directly impact their own market share.

Oligopoly: Cooperation

against the interests of consumers: A COLLUSION (secret agreement or cooperation for an illegal or dishonest purpose)

companies work together to have a power like monopoly, minimizing competition

one business acts as the standard (change price) and others follow (change their price too)

it is not dictated by the market but by the business

when businesses agree to this cooperation, it’s called a cartel

competition bureau

independent law enforcement agency

oversees and promotes fair business practices

purpose: encourage innovation and lower pricing, prevents anti-consumer behaviour, protects consumer rights

conspiracy

businesses working together against consumer interest (cooperation?)

bid-rigging

work together to determine winner of bidding price.

predatory pricing

temporarily dropping price to drive out competition

abuse of dominant position

large companies abusing their control over the market

mergers

not bad, but can consolidate too much power

horizontal: former rivals

vertical: business and supplier

conglomerate: businesses in unrelated industries