1. 5. Concentrated Markets
1.1. Concentration Ratio
1.2. Firms want to grow larger
1.2.1. Market power increase
1.2.2. Manager's objectives
1.2.3. Profit increase
1.2.4. Decrease in Risk
1.2.5. Increase competitiveness
1.2.6. Economies of scale
1.3. How do firms grow?
1.3.1. Internal growth
1.3.1.1. use retained profits/loans
1.3.1.1.1. Increase fixed and variable factors
1.3.1.2. e.g.new products
1.3.2. External growth
1.3.2.1. rapid route through merging
1.3.2.2. Horizontal integration
1.3.2.2.1. Forward and Backward
1.3.2.3. Vertical integration
1.3.2.4. Lateral Merger
1.3.2.5. Conglomerate Merger
1.3.3. Outsourcing
1.3.3.1. Technological Change
1.3.3.2. Increased competition
1.3.3.3. Pressure from financial markets
1.3.3.4. Cut in costs
1.3.3.5. Long term: can concentrate on R+D
2. 6.Price Discrimintion
2.1. difference in price but identical products
2.2. Conditions
2.2.1. Difference in price elasticity of demand
2.2.1.1. Higher for inelastic lower for elastic
2.2.2. Preventing resales
2.2.2.1. unique service
2.3. First Degree
2.3.1. Unique prices
2.3.1.1. Unlikely unless you know consumer's preferences
2.4. Second Degree
2.4.1. Batches
2.4.1.1. securing additional market share
2.5. Third Degree
2.5.1. Status/Location/Time
2.5.1.1. difference in elasticity change supernormal profit
2.6. Results
2.6.1. Consumer welfare
2.6.1.1. reduction of consumer surplus
2.6.1.1.1. Price is charged above marginal cost of production
2.6.1.2. benefit if consumer can buy at lower price
2.6.2. Producer surplus
2.6.2.1. Turning consumer surplus into supernormal profit
2.6.3. Profit
2.6.3.1. improve dynamic efficiency
3. 7. Monopoly
3.1. Barriers to entry
3.1.1. High fixed costs
3.1.2. Economies of scale
3.1.2.1. Natural monopoly
3.1.3. Brand loyalty
3.1.4. Legal Barriers
3.1.4.1. Patents
3.1.5. New node
3.1.5.1. Control over factors of production
4. 8. Oligopoly
4.1. market dominated by few firms
4.2. strategic interdependance
4.3. non price competition
4.3.1. services
4.3.1.1. home delivery etc
4.3.2. advertising
4.4. kinked demand curve
4.4.1. above certain price level firms might not match price and therefore there will be more than proportionate fall in quantity
4.4.2. assuming reaction by rivals
4.4.3. if strongest firm - then price war would mean that other firms will be forced out
4.5. collusion
4.5.1. price leadership
4.5.1.1. price changes established by dominant firm
4.5.1.2. tacit collusion
4.5.2. explicit collusion
4.5.2.1. price fixing
4.5.2.1.1. illegal
4.5.2.1.2. joint profit maximisation
4.5.3. easier to achieve when
4.5.3.1. only small no. of firms in industry and barriers to entry
4.5.3.2. market demand not too variable
4.5.3.3. demand is fairly price inelastic
4.5.3.4. output is easily monitored
4.5.4. failures
4.5.4.1. falling demand
4.5.4.2. enforcement problems
4.5.4.2.1. firms may not want to meet output level - produce under cartel price
4.5.4.3. entry of non cartel firms
4.5.5. benefits
4.5.5.1. joint research and development
4.5.5.1.1. economies of scale easier to achieve
4.5.5.2. shared use of facilities
4.5.5.2.1. costs down
4.5.5.3. increase in networking
4.6. game theory
4.6.1. prisoners dilemma
4.6.1.1. uncertainty of other firms behaviour
4.6.1.1.1. incentive to cheat
5. 9. Contestable Markets
5.1. Structure - Conduct - Performance
5.1.1. Structure - Perfect competition, Oligopoly, Monopoly
5.1.2. Conduct - Price, Output and non price decisions
5.1.3. Performance - efficiency static and dynamic
5.2. not no. of firms that influences conduct and performance
5.3. level of barriers to entry affects conduct and performance
5.4. when there are no barriers to entry and firms have access to same technology
5.5. hit and run entry
5.5.1. enter market and attract customers by undercutting price - leave when supernormal profit disappears
5.5.2. therefore firms always set their price at competitive level
5.6. perfectly contestable market
5.6.1. costs of entry and exit by rivals are zero
5.7. less contestable
5.7.1. when sunk costs are high
5.7.1.1. barriers to entry
5.8. profit margins are low
5.8.1. consumer surplus increases
5.8.2. prices kept low
5.9. evaluation
5.9.1. no market is perfectly contestable
5.9.1.1. existence of sunk costs
5.9.1.1.1. should measure the degree of contestablility
5.9.2. can ignore hit and run - continue supernormal profit and use it when firms enter by lowering prices
5.9.3. existing firms may create barriers to entry - patents or other strategic barriers
5.9.4. knowledge needed to enter industry and this may not be widely available
5.10. increasing contestablility
5.10.1. de-regulation
5.10.1.1. liberalisation
5.10.1.1.1. opening up markets for competition
5.10.2. competition plicy
5.10.2.1. laws against predatory behaviour
5.10.2.2. against price fixing
5.10.3. technological change
5.10.3.1. impact of new thecnology
5.10.3.1.1. cutting costs
6. 1. Costs and Revenues
6.1. Fixed Costs
6.2. Variable Costs
6.3. Law of Diminishing returns
6.4. Economies of Scale
6.4.1. External
6.4.2. Internal
6.4.3. Purchasing
6.4.4. Administrative
6.4.5. Financial
6.4.6. Technical
6.5. LRAC
6.6. Dis-economies of Scale
6.6.1. Control
6.6.2. Cooperation
6.6.3. Coordination
6.7. AC=TC/Q AC=AFC+AVC
6.8. MES
6.9. TR=PxQ AR=TR/Q AR=p
7. 2. Profit Maximisation
7.1. Normal Profit AC=AR
7.2. Supernormal Profit MC=MR
7.3. Role of Profit
7.3.1. Allocation of factors of Production
7.3.2. Investment
7.3.3. Economic performance indicator
7.3.4. Signal for market entry
7.4. Managerial Theories
7.4.1. Principle Agent Problem
7.4.1.1. Profit Satisficing
7.5. Behavioral Therories
7.6. New Ideas
7.6.1. Social goals
8. 3. Prefect competition
8.1. Characteristics
8.1.1. Many buyers and sellers
8.1.2. No barriers to entry/exit
8.1.3. Identical products
8.1.4. Perfect information
8.1.5. No economies of scale
8.1.6. No externalities
8.2. D=AR=MR
8.2.1. AC above D - loss below D - profit
8.3. Shutdown Condition
8.3.1. SR P<AVC LR P<AC
8.4. Benefits of competition
8.4.1. Lower prices
8.4.2. Low barriers to entry
8.4.3. Economic efficieny
8.4.3.1. firms move towards productive and allocative efficiency
8.5. Evaluation
8.5.1. Not all products are identical
8.5.1.1. Existence of advertising, brands, labels
8.5.2. Imperfect information
8.5.2.1. Asymmetric Information
8.5.3. Nearly always barriers to entry and economies of scale
8.5.4. Negative and Positive externalities exist
9. 4. Efficiency
9.1. Consumer surplus
9.2. Producer surplus
9.3. Static efficiency
9.3.1. Allocative
9.3.1.1. P=MC
9.3.2. Productive
9.3.2.1. Lowest point of AC curve
9.3.3. X efficiency
9.3.3.1. Not on AC curve due to organisational slack
9.3.4. given period of time
9.4. Dynamic efficiency
9.4.1. Product Innovation
9.4.1.1. creates new markets
9.4.1.2. sustaining innovation
9.4.1.3. disruptive innovation
9.4.2. Process Innovation
9.4.2.1. Changing ways of production
9.4.2.2. cost structure change
9.4.2.3. shift in MC and SRAC outwards
9.4.2.4. lower prices and bigger supernormal profit
9.4.3. over a period of time
9.4.4. Technical change
9.4.4.1. Movement of MC and SRAC
9.4.5. R+D
9.4.6. increase in human capital through education and training
9.5. Government policy to increase innovation
9.5.1. Tax credits
9.5.2. Policies to encourage small firm creation
9.5.3. Lower corporation taxes
9.5.4. Increase research fundings
9.6. Under prefect competition
9.6.1. (Allocative) Pareto optimum allocation
9.6.2. (Productive) Only in long run
9.6.3. (X) little scope
9.6.4. Not good fro R+D thus not resulting in dynamic efficiency
10. 10. Market Structure & tecnology
10.1. important features
10.1.1. number of firms
10.1.2. market share of largest firm
10.1.3. mature of costs
10.1.3.1. sunk costs?
10.1.4. degree of vertical intergration
10.1.4.1. process divided and put under different ownership
10.1.5. extent of product differenetiation
10.1.6. structure of buyers in industry
10.1.6.1. monopsony?
10.1.7. turnover of customers
10.1.7.1. market churn - how many costumers are prepared to switch when market conditions change
10.2. innovation
10.2.1. supernormal profit last in long term
10.2.2. government policies
10.2.2.1. competitiveness increase
10.2.2.2. protect and develop comparative advantage
10.2.2.3. potential source of long term growth
10.2.2.4. social benefits?
10.2.2.4.1. positive externalities
10.3. price
10.3.1. market structure
10.3.1.1. Perfect competition
10.3.1.1.1. price taking firms no influence over setting price
10.3.1.1.2. free entry of firms
10.3.1.1.3. elastic demand curve
10.3.1.2. Pure Monopoly
10.3.1.2.1. Supernormal profits in long and short run
10.3.1.2.2. barriers to entry
10.3.1.2.3. potential for price discrimination
10.3.1.3. Oligopoly
10.3.1.3.1. competition among few
10.3.1.3.2. some market power
10.3.1.3.3. interdependent nature of pricing
10.3.1.3.4. each firm - consider strategic behaviour of other firms in market
10.3.1.3.5. objective - protect market share rather than profit maximisation
10.3.1.4. Contestable markets
10.3.1.4.1. barriers to entry low
10.3.1.4.2. hit and run
10.3.1.4.3. behaviour of existing firm affected by threat of new firm
10.3.1.4.4. barriers to contestablilty
10.3.2. elasticity of demand
10.3.2.1. demand price inelastic
10.3.2.1.1. firm can raise price without losing much sales
10.3.2.2. demand price elastic
10.3.2.2.1. increase in price --> lower producer surplus and profit
10.3.3. product differentiation
10.3.3.1. some consumers willing to pay premium prices
10.3.3.2. more elastic demand when products are close to end of life-cycle
10.3.3.3. marketing and advaertising
10.3.3.3.1. brand loyalty
10.3.4. regulatory system
10.3.4.1. government intervention directly or indirectly in price setting process
10.3.5. International environment
10.3.5.1. competition from all over the world
10.3.5.1.1. globalisation
10.3.6. economic cycle
10.3.6.1. pricing power affected by macro economics
10.3.6.1.1. costs
10.3.6.1.2. competitors
10.3.6.1.3. customers
10.3.6.1.4. business objecives
10.4. firms and markets
10.4.1. production
10.4.1.1. new technology
10.4.1.1.1. pushes down AC cuvre
10.4.1.1.2. short term costs
10.4.1.1.3. influence poptimal methods of production
10.4.1.1.4. job losses?
10.4.1.1.5. remain competitive
10.4.2. consumption
10.4.2.1. Supply curve to the right
10.4.2.1.1. lower price levels
10.4.2.2. quality of products rise
10.4.2.3. increase in demand?
10.4.3. efficiency
10.4.3.1. dynamic efficiency increase
10.4.3.1.1. new product - boost sales - profits rise
10.4.3.2. produce at lowest point on AC curve? (productive efficiency)
10.4.3.3. allocativeefficiency
10.4.4. competition
10.4.4.1. nature of product
10.4.4.2. no. of buyers and firms in industry
10.4.4.3. level of barriers to entry
10.4.4.4. amount of information available
10.4.4.5. promote competition
10.4.4.5.1. reduce barriers to entry
10.4.4.5.2. reduce concentration
10.4.4.5.3. increase degree of contestablilty
10.4.4.5.4. intensify competition
10.4.4.5.5. challenge monopolies
10.4.4.6. reinforce monopoly power
10.4.4.6.1. firms patent innovations