Market Structure

Question 1

What is a market?

Answer 1

A place where two or more parties can meet to engage in an economic transaction.

Question 2

What is market power?

Answer 2

The ability of a firm within a market to profitably charge prices above the competitive level for a sustained time

Question 3

What is a turbulent market?

Answer 3

In turbulent markets, top-selling company of a year may not dominate the next year

in less turbulent markets, the same companies dominate year after year with very little movement up and down in rank order

Question 4

Give 6 characteristics of perfect competition.

Answer 4

• many buyers and sellers with small size
• little differentiation between products
• perfect information for buyers and sellers
• no transaction/switching costs in market
• free market entry and exit
• equal access to technologies

Question 5

Give 4 requirements for a company to be a monopoly.

Answer 5

• Operate under large economics of scale
• Huge capital
• No strong substitute/alternative
• Technological superiority and ability to control resources

Question 6

Give 3 advantages of a monopoly

Answer 6

Economies of Scale, Price Stability, and R&D Spending

Question 7

Give 3 disadvantages of a monopoly

Answer 7

Price Fixing, Declining Product Quality, Loss of Innovation and Inflation

Question 8

What is an oligopoly?

Answer 8

It consists of a select few companies that combined, exert significant influence over a market

Question 9

How is it easier to become a monopoly in the Digital Economy? (5 reasons)

Answer 9

• Network effects
• High switch costs
• Economies of Scale
• AI & Data Analytics enable superior quality of goods
• Hard to regulate due to unclear market definition

Question 10

Give 3 differences between digital business and the traditional market.

Answer 10

• Difficultly to find substitutes
• Digital market definition is complicated by zero-pricing
• Broader market definitions due to converging products

Question 11

Give the purpose of Porter’s Five Forces Model.

Answer 11

• gives a general view of the firm, its competitors and the environment
• helps to determine the competitive landscape that a company faces and to understand how a company is positioned within it

Question 12

State the Five Forces in Porter’s Model.

Answer 12

• Competition in the Industry
• Potential of New Entrants into an Industry
• Bargaining Power of Suppliers
• Bargaining Power of Customers
• Threat of Substitutes