Markets B

Markets B

1. Competition

   • The competitive environment is the degree of competition in the market and the buying and selling power of customers and suppliers within that market

2. Olipgopoly

   • Oligopoly occurs when a few firms dominate the market
     • Like monopolies and duopolies, oligopolies can exploit consumers by charging high prices Barriers to entry exist in oligopolistic markets, particularly through advertising Oligopolies tend to compete on non-price competition such as promotion and there may also be an element of collusion It is important for oligopolists to take into account the reaction of competitors when making decisions regarding pricing. For example, if one firm cuts price, then others are likely to follow suit, resulting in a lower income for the market as a whole Therefore, oligopolists are unlikely to lower price as a long term strategy
     • Oligopolies exhibit the following characteristics: Do not tend to compete on price in the long run However, oligopolists might compete on price as a tactic (short run) Tend to spend heavily on new product development Branding is crucial and expensive marketing budgets are available Firms must ensure that their products are accessible if they are going to be successful

3. Duopoly

   • A duopoly exists where there are only two firms in the market Like monopolies, duopolies can also exploit consumers by charging high prices Similar barriers to entry that exist in monopoly markets also affect duopolies Duopolies tend to compete on non-price competition such as promotion Duopolies are often accused of collusion (making agreements between each other that restrict competition). This is illegal and firms that collude can be heavily fined

4. Monopoly

   • Monopoly occurs when one firm dominates the market
     • Price leaders - they can charge high prices but are often restricted from doing so by government regulation New product development is not effected by competitors Monopolies will use promotion to inform and persuade customers They can increase sales revenue through increasing market size How monopolies distribute and sell goods and services depends on the type of product For example, the water companies must supply water to their region
     • A monopoly exists where there is only one firm in the market However, the Government refer to any company that has at least 25% market share as having monopoly powers Monopolies can exploit consumers by charging high prices. Therefore, monopolies are regulated in order to protect the customer Barriers to entry exist in monopoly markets that stop firms from entering the market. These include: high costs to enter the market, especially high capital costs economies of scale experienced by large firms e.g. bulk buying legal barriers e.g. only pharmacies can sell prescription drugs A pure monopoly has only one firm in the industry

5. Monopolistic competiton

   • occurs when there are many firms in the market but there is some form of product differentiation
   • Monopolistic Competition exists where there are a large number of firms in the market selling differentiated products. This leads to a small degree of monopoly power as each firm offers something different to the others In this type of market barriers to entry are very low. Therefore, it is easy for firms to enter the market. This creates strong competition This mix between monopoly power and competition leads to the term monopolistic competition Firms within this market will try to brand their product. This might be through the building up of a reputation There are numerous examples of this type of competition such as hairdressing, restaurants and the health and beauty industry

6. Perfect competition

   • The model of perfect competition is based on the following assumptions: Large numbers of producers Identical products Freedom of entry and exit Readily available information
   • In perfect competition there are a large number of producers in the market Each firm is relatively small in size and sell to a large number of small buyers All of these producers are price takers i.e. they are not large enough to influence price Each firm can sell all of its output at the current market price Therefore, it would not lower its price If it were to raise price it would sell nothing as buyers would go to another seller
   • In perfect competition all products are identical or homogeneous Buyers cannot tell the difference between products from different firms Therefore, there is no branding of products and brand loyalty does not exist This means that firms are unable to raise prices much beyond their competitors In reality firms are unlikely to sell identical products, even carrots will be of different quality and branding will differentiate the product in the eyes of the consumer
   • In perfect competition there are no barriers to entry or exit This means firms are free to enter or exit the market if they wish to do so Therefore, entry costs will be low or non-existent Barriers to entry such as costs associated with capital expenditure, research and development and start-up of the business are low or non- existent This means firms can move into the market if they see that profits are higher than normal This restricts the opportunities available for firms to charge higher prices
   • In perfect competition there is readily available information or perfect knowledge Perfect knowledge occurs when all economic agents e.g. buyers and sellers have a comprehensive understanding of all factors within a market e.g. prices and availability All buyers will have information about all prices and the availability of goods and services in the market All sellers have the same knowhow in how to produce goods and services so produce the same quality of output

7. Imperfect competition

   • Imperfect competition is a type of market structure that exhibits some but not all elements of perfect competition Differences include: There are less firms in the market There is some form of product differentiation There are at least some barriers to entry and exit The demand curve is downward sloping Suppliers can influence prices

8. Market Structure

   • number of firms within an industry and the way in which those businesses behave e.g. differentiating products