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allocative efficiency
productive efficiency
dynamic efficiency
x-inefficiency
perfect competition
a market where there is a high degree of competition; the assumptions made rarely hold and no market is completely perfectly competitive
monopolistic competition
a market structure where a large number of small firms produces non-homogeneous products and where there are no barriers to entry or exit
oligopoly
a market structure where there is a small number of firms in the industry and where each firm is interdependent with one another, creating uncertainty; barriers to entry are likely to exist
concentration ratio
measure the percentage of the total market that a particular number of firms have
n-firm concentration ratio formula
(total sales of n firms / total size of market) x 100
collusion
collective agreements, either formal or tacit, between firms that restrict competition
collusive oligopoly
a market with a high concentration ratio where a few interdependent firms cooperate either formally or tacitly, to restrict competition
cartel
a formal agreement between firms to limit competition in the market, e.g. by limiting output in order to raise prices
tacit or informal collusion
when firms collude without any formal agreement having been reached and where there is no explicit communication between firms and strategies; an example is price leadership
game theory
the analysis of situations in which players are interdependent
nash equilibrium
where neither player is able to improve their position and has optimised their outcome based on the other player’s expected decision
price war
a situation where several firms in a market repeatedly lower their prices to outcompete other firms; the objective may be to gain or defend market share
predatory pricing
a pricing strategy where a firm lowers its prices when a new entrant comes into the market in order to force the competitor out of the market, and then putting prices back up again once this objective has been achieved
cost plus pricing
firms simply work out their average costs and add a percentage increase
psychological pricing
firms use the non-rounded prices to give an impression that the price is cheaper than it is
market-led pricing
firms can set prices simply by looking at prices charged by competition
price skimming
when a product is initially launched, firms can set very high prices to cover research and development costs and keep demand at manageable levels
penetration pricing
when a product is first introduced, the firm will set prices low to encourage people to use it for the first time
pure monopoly
where one firm is the sole seller of a product in the market
monopsony
exists when there is only one buyer in the market
contestable market
a market where there is freedom of entry to the industry and where costs of exit are low
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