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Market structures help

Is anyone able to summarise all the market structures we need to know (and if they have neat notes) thanks!!

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Reply 1
Original post by Mahin.u
Is anyone able to summarise all the market structures we need to know (and if they have neat notes) thanks!!


Perfect competition
- Perfect information / low or no barriers to entry / firms are price-takers / homogenous goods
- There can be supernormal profits in the short-run, but in the long-run, firms always earn a normal profit.
- Allocatively, productive efficient in the long-run

Monopolistic competition
- Essentially the same characteristics as perfect competition, except that goods are differentiated and firms have price-setting power
- Similarly snp in short-run, but normal profits in long-run as firms may engage in 'hit and run' since they're incentivised to enter and leave the market depending on the existence of supernormal profits
- Allocatively efficient in the long-run

Monopoly
- Legally this is when one firm holds 25% of market share in an industry, economically it's when one firms dominates the market.
- Firms are price-setters / profit maximising / imperfect knowledge / differentiated products / earn supernormal profits in the long-run due to high barriers to entry
- Monopoly power usually depends on how you define the market. For example, Tesco is a monopoly in UK, but not internationally.
- Consumers are usually exploited by high prices set by monopolies at MC=MR
- Barriers to entry may include: Economies of scale / high start up costs / brand loyalty / market saturation
- Not allocative or productive efficient, but they are dynamically efficient due to high supernormal profits, which they use to reinvest into R&D

Oligopoly
- When the market is dominated by a small number of producers - 5 firm concentration ratio is more than 60% of total market shares
- Products can be differentiated or homogenous
- Interdependent strategic decisions by firms depending on the actions of other firms in the market (this is key for oligopolies)
- Either Competitive or Collusive (high barriers to entry) oligopolies
- Competitive oligopolies might engage in price or non-price competition -> Price comp (e.g. price wars, predatory pricing, limit pricing); Non-price comp (e.g. service / location / environment)
- Kinked demand curve (not on spec) or the pay-off matrix helps to explain why there is Price Rigidity in an oligopoly
- Collusive oligopolies means that firms might be Tacitly / Explicitly colluding - Tacit: Price leadership, Explicit: Cartels
- Collusion is usually illegal and will be monitered by the CMA (Competition Market Authorities)
- Cartels break down easily due to lack of trust between members, and they're greed to earn higher profits -> this can be shown through the pay-off matrix

Monopsony - e.g. NHS / Tesco
- When firms have buying or bargaining power in one or more markets (usually firms with oligopoly or monopoly power also have monopsony power)
- Firms with monopsony power can exploit bargaining power with suppliers to negotiate lower prices -> reduces their average cost which leads to potentially lower prices for consumers
- MC=AC and remains the same no matter the change in output as monopsony firms can negotiate prices
- Degree of monopsony power held by firms depends on the power or consumer loyalty towards suppliers
- Suppliers are usually weak as they do not have their own brand image and loyal consumers, so they are forced to be exploited by firms with monopsony power as they cannot afford to lose such a powerful buyer
- Government intervention such as GCA (Groceries Code Adjudicator) helps to monitor relationships between UK's largest grocery retailers and their suppliers -> helps to reduce exploitation of suppliers and control monopsony power
- Producers may form cooperatives to protect themselves against having prices undercut by monopsony firms
Reply 2
Wait actually just making sure, is this Edexcel A-Level Microeconomic Paper 1?
Reply 3
I think it is - it has all the content from it
Original post by EleaB
Wait actually just making sure, is this Edexcel A-Level Microeconomic Paper 1?
Reply 4
Original post by EleaB
Perfect competition
- Perfect information / low or no barriers to entry / firms are price-takers / homogenous goods
- There can be supernormal profits in the short-run, but in the long-run, firms always earn a normal profit.
- Allocatively, productive efficient in the long-run

Monopolistic competition
- Essentially the same characteristics as perfect competition, except that goods are differentiated and firms have price-setting power
- Similarly snp in short-run, but normal profits in long-run as firms may engage in 'hit and run' since they're incentivised to enter and leave the market depending on the existence of supernormal profits
- Allocatively efficient in the long-run

Monopoly
- Legally this is when one firm holds 25% of market share in an industry, economically it's when one firms dominates the market.
- Firms are price-setters / profit maximising / imperfect knowledge / differentiated products / earn supernormal profits in the long-run due to high barriers to entry
- Monopoly power usually depends on how you define the market. For example, Tesco is a monopoly in UK, but not internationally.
- Consumers are usually exploited by high prices set by monopolies at MC=MR
- Barriers to entry may include: Economies of scale / high start up costs / brand loyalty / market saturation
- Not allocative or productive efficient, but they are dynamically efficient due to high supernormal profits, which they use to reinvest into R&D

Oligopoly
- When the market is dominated by a small number of producers - 5 firm concentration ratio is more than 60% of total market shares
- Products can be differentiated or homogenous
- Interdependent strategic decisions by firms depending on the actions of other firms in the market (this is key for oligopolies)
- Either Competitive or Collusive (high barriers to entry) oligopolies
- Competitive oligopolies might engage in price or non-price competition -> Price comp (e.g. price wars, predatory pricing, limit pricing); Non-price comp (e.g. service / location / environment)
- Kinked demand curve (not on spec) or the pay-off matrix helps to explain why there is Price Rigidity in an oligopoly
- Collusive oligopolies means that firms might be Tacitly / Explicitly colluding - Tacit: Price leadership, Explicit: Cartels
- Collusion is usually illegal and will be monitered by the CMA (Competition Market Authorities)
- Cartels break down easily due to lack of trust between members, and they're greed to earn higher profits -> this can be shown through the pay-off matrix

Monopsony - e.g. NHS / Tesco
- When firms have buying or bargaining power in one or more markets (usually firms with oligopoly or monopoly power also have monopsony power)
- Firms with monopsony power can exploit bargaining power with suppliers to negotiate lower prices -> reduces their average cost which leads to potentially lower prices for consumers
- MC=AC and remains the same no matter the change in output as monopsony firms can negotiate prices
- Degree of monopsony power held by firms depends on the power or consumer loyalty towards suppliers
- Suppliers are usually weak as they do not have their own brand image and loyal consumers, so they are forced to be exploited by firms with monopsony power as they cannot afford to lose such a powerful buyer
- Government intervention such as GCA (Groceries Code Adjudicator) helps to monitor relationships between UK's largest grocery retailers and their suppliers -> helps to reduce exploitation of suppliers and control monopsony power
- Producers may form cooperatives to protect themselves against having prices undercut by monopsony firms


is kinked demand curve not on the spec? i thought it was
Reply 5
This is really helpful thank you so much :smile:
Original post by EleaB
Perfect competition
- Perfect information / low or no barriers to entry / firms are price-takers / homogenous goods
- There can be supernormal profits in the short-run, but in the long-run, firms always earn a normal profit.
- Allocatively, productive efficient in the long-run

Monopolistic competition
- Essentially the same characteristics as perfect competition, except that goods are differentiated and firms have price-setting power
- Similarly snp in short-run, but normal profits in long-run as firms may engage in 'hit and run' since they're incentivised to enter and leave the market depending on the existence of supernormal profits
- Allocatively efficient in the long-run

Monopoly
- Legally this is when one firm holds 25% of market share in an industry, economically it's when one firms dominates the market.
- Firms are price-setters / profit maximising / imperfect knowledge / differentiated products / earn supernormal profits in the long-run due to high barriers to entry
- Monopoly power usually depends on how you define the market. For example, Tesco is a monopoly in UK, but not internationally.
- Consumers are usually exploited by high prices set by monopolies at MC=MR
- Barriers to entry may include: Economies of scale / high start up costs / brand loyalty / market saturation
- Not allocative or productive efficient, but they are dynamically efficient due to high supernormal profits, which they use to reinvest into R&D

Oligopoly
- When the market is dominated by a small number of producers - 5 firm concentration ratio is more than 60% of total market shares
- Products can be differentiated or homogenous
- Interdependent strategic decisions by firms depending on the actions of other firms in the market (this is key for oligopolies)
- Either Competitive or Collusive (high barriers to entry) oligopolies
- Competitive oligopolies might engage in price or non-price competition -> Price comp (e.g. price wars, predatory pricing, limit pricing); Non-price comp (e.g. service / location / environment)
- Kinked demand curve (not on spec) or the pay-off matrix helps to explain why there is Price Rigidity in an oligopoly
- Collusive oligopolies means that firms might be Tacitly / Explicitly colluding - Tacit: Price leadership, Explicit: Cartels
- Collusion is usually illegal and will be monitered by the CMA (Competition Market Authorities)
- Cartels break down easily due to lack of trust between members, and they're greed to earn higher profits -> this can be shown through the pay-off matrix

Monopsony - e.g. NHS / Tesco
- When firms have buying or bargaining power in one or more markets (usually firms with oligopoly or monopoly power also have monopsony power)
- Firms with monopsony power can exploit bargaining power with suppliers to negotiate lower prices -> reduces their average cost which leads to potentially lower prices for consumers
- MC=AC and remains the same no matter the change in output as monopsony firms can negotiate prices
- Degree of monopsony power held by firms depends on the power or consumer loyalty towards suppliers
- Suppliers are usually weak as they do not have their own brand image and loyal consumers, so they are forced to be exploited by firms with monopsony power as they cannot afford to lose such a powerful buyer
- Government intervention such as GCA (Groceries Code Adjudicator) helps to monitor relationships between UK's largest grocery retailers and their suppliers -> helps to reduce exploitation of suppliers and control monopsony power
- Producers may form cooperatives to protect themselves against having prices undercut by monopsony firms
Reply 6
it's not explicitly mentioned, but if you know it it's great I guess. Game theory pay off matrix is though.
Original post by m184
is kinked demand curve not on the spec? i thought it was
Reply 7
Original post by m184
is kinked demand curve not on the spec? i thought it was

I don't believe it is, but I really like talking about it as it really helps to elaborate my points about oligopolies
Reply 8
Kinked demand is the MR and AR curve that starts out steep then becomes less steep all of a sudden right? What is the chain of reasoning behind that?

Original post by EleaB
I don't believe it is, but I really like talking about it as it really helps to elaborate my points about oligopolies
Reply 9
Original post by EleaB
I don't believe it is, but I really like talking about it as it really helps to elaborate my points about oligopolies


yeah same i had no idea it wasn’t on the spec i guess my teacher just wants us to use it
Reply 10
Original post by abi.002
Kinked demand is the MR and AR curve that starts out steep then becomes less steep all of a sudden right? What is the chain of reasoning behind that?



above the point the curve kinks demand is elastic - when a firm raises the price other firms in the market will keep their prices the same as their price will be more competitive, and so the original firm loses demand by a relatively large amount
below the kink, demand is inelastic - if the firm lowers its price other firms will follow this and also lower their prices to stay competitive, so there won’t be much of a rise in demand
so changes in price will not improve demand/revenue since firms in oligopoly are interdependent and so prices are stable/rigid
Reply 11
Original post by abi.002
Kinked demand is the MR and AR curve that starts out steep then becomes less steep all of a sudden right? What is the chain of reasoning behind that?


It actually starts out less steep (elastic), then becomes very steep (inelastic).
So usually firms will initially set prices at the point where the curve kinks.
There are 2 ways to go with this: always rmb that oligopolies are when firms are interdependent on each other's decisions
1. If Firm A decides to increase prices, Firm B won't increase prices as they can use their lower price to attract more consumers, hence demand for Firm A is more elastic as the % increase in price is less than the % decrease in consumers, leading to a loss in profits for Firm A.
2. If Firm A decides to decrease prices, Firm B will also decrease prices of their products in order to keep their consumers from buying Firm A's products instead. This will mean that demand is relatively inelastic as the % decrease in price is more than the % increase in consumers, as both firms lower prices of goods. This would also lead to a loss in profits for firms.

Therefore, the kinked demand curve explains the price rigidity in oligopolies as any changes in prices would likely lead to a loss in profits for firms
Reply 12
That makes sense, thank you so much :smile:
Original post by EleaB
It actually starts out less steep (elastic), then becomes very steep (inelastic).
So usually firms will initially set prices at the point where the curve kinks.
There are 2 ways to go with this: always rmb that oligopolies are when firms are interdependent on each other's decisions
1. If Firm A decides to increase prices, Firm B won't increase prices as they can use their lower price to attract more consumers, hence demand for Firm A is more elastic as the % increase in price is less than the % decrease in consumers, leading to a loss in profits for Firm A.
2. If Firm A decides to decrease prices, Firm B will also decrease prices of their products in order to keep their consumers from buying Firm A's products instead. This will mean that demand is relatively inelastic as the % decrease in price is more than the % increase in consumers, as both firms lower prices of goods. This would also lead to a loss in profits for firms.

Therefore, the kinked demand curve explains the price rigidity in oligopolies as any changes in prices would likely lead to a loss in profits for firms

When you draw the kinked demand curve, it's not necessary to draw MR right? And what do you think we'll get a 25 marker on this year?
(edited 9 months ago)
Original post by EleaB
Perfect competition
- Perfect information / low or no barriers to entry / firms are price-takers / homogenous goods
- There can be supernormal profits in the short-run, but in the long-run, firms always earn a normal profit.
- Allocatively, productive efficient in the long-run

Monopolistic competition
- Essentially the same characteristics as perfect competition, except that goods are differentiated and firms have price-setting power
- Similarly snp in short-run, but normal profits in long-run as firms may engage in 'hit and run' since they're incentivised to enter and leave the market depending on the existence of supernormal profits
- Allocatively efficient in the long-run

Monopoly
- Legally this is when one firm holds 25% of market share in an industry, economically it's when one firms dominates the market.
- Firms are price-setters / profit maximising / imperfect knowledge / differentiated products / earn supernormal profits in the long-run due to high barriers to entry
- Monopoly power usually depends on how you define the market. For example, Tesco is a monopoly in UK, but not internationally.
- Consumers are usually exploited by high prices set by monopolies at MC=MR
- Barriers to entry may include: Economies of scale / high start up costs / brand loyalty / market saturation
- Not allocative or productive efficient, but they are dynamically efficient due to high supernormal profits, which they use to reinvest into R&D

Oligopoly
- When the market is dominated by a small number of producers - 5 firm concentration ratio is more than 60% of total market shares
- Products can be differentiated or homogenous
- Interdependent strategic decisions by firms depending on the actions of other firms in the market (this is key for oligopolies)
- Either Competitive or Collusive (high barriers to entry) oligopolies
- Competitive oligopolies might engage in price or non-price competition -> Price comp (e.g. price wars, predatory pricing, limit pricing); Non-price comp (e.g. service / location / environment)
- Kinked demand curve (not on spec) or the pay-off matrix helps to explain why there is Price Rigidity in an oligopoly
- Collusive oligopolies means that firms might be Tacitly / Explicitly colluding - Tacit: Price leadership, Explicit: Cartels
- Collusion is usually illegal and will be monitered by the CMA (Competition Market Authorities)
- Cartels break down easily due to lack of trust between members, and they're greed to earn higher profits -> this can be shown through the pay-off matrix

Monopsony - e.g. NHS / Tesco
- When firms have buying or bargaining power in one or more markets (usually firms with oligopoly or monopoly power also have monopsony power)
- Firms with monopsony power can exploit bargaining power with suppliers to negotiate lower prices -> reduces their average cost which leads to potentially lower prices for consumers
- MC=AC and remains the same no matter the change in output as monopsony firms can negotiate prices
- Degree of monopsony power held by firms depends on the power or consumer loyalty towards suppliers
- Suppliers are usually weak as they do not have their own brand image and loyal consumers, so they are forced to be exploited by firms with monopsony power as they cannot afford to lose such a powerful buyer
- Government intervention such as GCA (Groceries Code Adjudicator) helps to monitor relationships between UK's largest grocery retailers and their suppliers -> helps to reduce exploitation of suppliers and control monopsony power
- Producers may form cooperatives to protect themselves against having prices undercut by monopsony firms

Monopolistic competition doesn't lead to LR allocative efficiency though? In the LR, the AC curve will touch the AR curve at the point of MC = MR. Whilst the point of allocative efficiency is where AR (demand) = MC (supply), so monopolistic competition doesn't hit any of the efficiencies.
Reply 15
Original post by toxicgamage56
Monopolistic competition doesn't lead to LR allocative efficiency though? In the LR, the AC curve will touch the AR curve at the point of MC = MR. Whilst the point of allocative efficiency is where AR (demand) = MC (supply), so monopolistic competition doesn't hit any of the efficiencies.

yep, ur completely 100% right.
thank god someone is fact checking me
Reply 16
Original post by toxicgamage56
When you draw the kinked demand curve, it's not necessary to draw MR right? And what do you think we'll get a 25 marker on this year?


I don't think MR is necessary as it doesn't help explain anything. For the 25 marker I'm not too sure, but I'm hoping something related to oligopolies or game theory
Reply 17
Original post by toxicgamage56
When you draw the kinked demand curve, it's not necessary to draw MR right? And what do you think we'll get a 25 marker on this year?

Also i just realised we both study economics and english cuz i see you in another english forum as well haha
Original post by EleaB
I don't think MR is necessary as it doesn't help explain anything. For the 25 marker I'm not too sure, but I'm hoping something related to oligopolies or game theory

Yeah, I didn't think it was necessary, just checking. An oligopoly 25 marker would be amazing, you can use the kinked demand curve, game theory, profit maximising costs and revenue diagram. So much to talk about there.
Original post by EleaB
Also i just realised we both study economics and english cuz i see you in another english forum as well haha

Yes, we have front-heavy exams don't we? Are you prepared for tomorrow? I think I might just plan all the essays for previous years, and have a look at what econplusdal thinks is wise. I've been doing a past paper a day for the past 4 days so I think I've started to become normalised to it, hopefully that'll help me tomorrow. I'm just hoping we don't get silly questions on niche topics for our large mark questions - worst nightmare might be a 25 marker on normative and positive statements.

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