What is perfect competition?
A market with many buyers and sellers selling homogenous goods with perfect information and freedom of entry and exit
What is monopoly?
A market structure with a single seller in the market
What is a natural monopoly?
A market where economies of scale are so large that it is more efficient for one firm to supply the entire market
What is price discrimination?
When a monopolist charges different groups of consumers different prices for the same good or service
What is X-inefficiency?
When a firm’s actual costs are greater than the lowest possible cost due to inefficiency
What is monopolistic competition?
A market with many buyers and sellers selling differentiated (non-homogenous) goods
(each firm must take account of the behaviour and likely behaviour of rival firms in the industry)
What is oligopoly?
A market where a few firms dominate and act interdependently
What is collusion?
When firms agree to work together (e.g., fixing price or output) to limit competition
What is overt collusion?
Collusion where firms have a formal agreement, such as a cartel
What is tacit collusion?
Collusion where firms indirectly coordinate without a formal agreement (e.g., price leadership)
What is interdependent behaviour in oligopoly?
When the actions of one firm directly affect another firm’s decisions
What is non-price competition?
When firms compete on factors other than price, such as quality or customer service
What is a concentration ratio?
The combined market share of the largest firms in a market
What is game theory?
A method used to predict the likely decisions of firms when outcomes depend on the actions of rivals
What is non-collusive oligopoly?
An oligopoly where firms compete against each other rather than collude
What is a contestable market?
a market in which the existing firm makes only normal profit, as it cannot set a
price higher than average cost without attracting entry, due to the absence of barriers to entry and
sunk costs
(A market with the threat of new entrants, forcing existing firms to be efficient)
What is a perfectly contestable market?
A market with no barriers to entry where new firms can enter and compete equally
hit-and-run entry
where a firm enters a market to take short-run supernormal profits knowing it can exit
without incurring costs
