1. Oligopoly
1.1. Competative
1.2. Collusve
1.2.1. Acts like a monopoly
1.2.2. Tacit
1.2.2.1. legal
1.2.2.2. When all firms in a market move in line with each other
1.2.3. Explicit
1.2.3.1. Cartels
1.2.3.2. Illegal
1.2.3.3. When firms get together and fix a high price
1.2.3.4. Ideal conditions
1.2.3.4.1. Few firms in the industry
1.2.3.4.2. Market demand isn't very variable
1.2.3.4.3. Demand is relatively inelastic
1.2.3.4.4. Each firms output can be easily monitored
1.2.3.5. Causes of a breakdown
1.2.3.5.1. Enforcement problems
1.2.3.5.2. Falling market demand
1.2.3.5.3. Entry of firms outside the cartel
1.2.3.5.4. Market regulators finding out
1.2.4. Benifits
1.2.4.1. Joint research projects
1.2.4.2. Shared use of facilities
1.2.4.3. Adoption of common standards
1.3. A market dominated by a few producers, which all have a degree of control in the market
1.4. High level of market concentration
1.5. When the top five firms in the market account for 60% of the total market demand and sales
1.6. Strategic interdependance
1.6.1. Depend on not only on its actions but the action of its rivals too
1.6.2. Uncertainty
1.7. Barriers to entry
1.7.1. Maintain super normal profit
1.7.2. Low enough for smaller firms to exist but they cant get as big
1.8. Product branding
1.8.1. Scope for differentiating
1.9. Non-price competition
1.9.1. Eg; advertising, loyalty cards, range of services, opening hours
1.10. Kinked demand curve
1.10.1. A firm is unlikely to follow a price rise of a competitor but may follow a price fall
1.10.2. Price rigidity
1.11. Game theory
1.11.1. How a firm reacts given how they think the other will react
2. Contestable markets
2.1. Low sunk costs
2.2. A market has no barriers to entry and exit
2.3. All firms have access to the same technology
2.4. The treat of new firms entering keeps prices low
2.4.1. Supernormal profit will encourage firms to enter
2.5. Firms may try and reduce their supernormal profits so that they don't encourage new firms to enter and reduce them
2.6. Evaluation
2.6.1. No market is fully contestable
2.6.2. The threat of new firms may not be enough to change the firm's behaviour
2.6.3. Existing firms may protect themselves
2.6.3.1. Patents
2.7. Increasing contestability of markets
2.7.1. De-regulation of markets
2.7.1.1. Reduces barriers to entry
2.7.2. Tougher competition laws against predatory pricing
2.7.3. Single markets
2.7.4. New technology
3. Market structure and technology
3.1. Most important features
3.1.1. Number of firms
3.1.2. Market share of the largest firms
3.1.3. Nature of costs
3.1.4. Degree to which the industry is vertically intergrated
3.1.5. Product differentiation
3.1.6. Structure of buyers
3.1.7. The number of consumers which are prepared to switch supplier
3.2. Perfect competition
3.3. Monopoly
3.4. Oligopoly
3.5. Factors affecting a firms pricing power
3.5.1. Costs
3.5.2. Competitors
3.5.3. Customers
3.5.4. Business objectives
3.6. Technology
3.6.1. Reuces AC
3.6.2. Increases both consumption and production possibilities
3.6.3. Improve productivity
3.6.4. Improve efficiency
4. Costs
4.1. Fixed costs; a cost that does not change
4.2. Variable costs; a cost that changes with output
4.3. Total costs=fixed costs+variable costs
4.4. Average costs=total costs/quantity
4.4.1. Fixed costs are diluted by increased output
4.5. Average total costs=average fixed costs+average variable costs
4.6. Short run; the period of time when at least one of the factors of production is fixed, usually capital
4.7. Diminishing returns; when as more units of a variable factor are added to a fixed factor marginal product decreases (average costs usually fall initially)
4.8. Marginal product; the addition of total product of one extra unit of output
4.9. If productivity increased variable costs per unit will fall and so average costs will fall
4.10. Economies of scale; when an increase in imputs leads to a more than proportionate increase in output (falling long run average cost curve)
4.10.1. Technical economies of scale
4.10.1.1. capital
4.10.1.2. specialisation
4.10.1.3. Increased dimensions
4.10.2. Purchasing economies of scale
4.10.2.1. bulk buying
4.10.2.2. monopsony power
4.10.3. Financial economies of scale
4.10.3.1. lower interest on loans
4.10.4. Administrative economies of scale
4.10.5. External economies of scale; when the growth of the whole industries leads to falling LRAC.
4.10.5.1. Clusters
4.11. Diseconomies of scale; when long run average costs rise as output increases
4.11.1. Control
4.11.2. Co-ordination
4.11.3. Co-operation
4.12. Minimum efficient scale; the point where the bottom of the LRAC curve is first reached (all economies of scale have been exausted
4.12.1. If a firm has large fixed costs it takes a long time to reach the MES
5. Revenue
5.1. Total revenue=price×quantity
5.2. Average revenue=total revenue/quantity=price
5.3. Marginal revenue; the additition to total revenue from the sale of one more unit of output
5.4. The revenue maximising point is when MR=0
6. Profit
6.1. Normal profit; the level of profit which is just sufficient to keep all factors of production in thier present use (AC=AR)
6.2. Supernormal profit; anything is excess of normal profit
6.3. Profits are maximised when MC=MR
6.4. Role of profit
6.4.1. Allocation of factors of production
6.4.1.1. scarce resources follow high profit areas
6.4.2. Signals for market entry
6.4.3. Promotes innovation
6.4.3.1. invest supernormal profits on new products and new techniques (dynamic efficiency)
6.4.4. Investment
6.4.4.1. increasing capital stock to increase productivity
6.4.4.2. Purchase firms to exploit economies of scale
6.4.5. Reward risks from entrpreneurs
6.4.6. Economic performance indicator
6.5. Principle agent problem
6.5.1. When the principle (shareholders) delegate the control of the company to agents (managers) and they don't work in the best interests of the principle
6.5.2. Managers
6.5.2.1. Managerial Status
6.5.2.2. Increase market share or sales growth
6.5.2.3. Revenue maximisation
6.5.3. Shareholders
6.5.3.1. Increased profits
6.5.4. Solutions
6.5.4.1. Independant experts
6.5.4.2. Share ownership schemes
6.5.4.3. Shareholders have a vote
6.5.4.4. Stock market
6.5.4.4.1. if the profits get too low and the share price gets to low the firm may be taken over my another firm
7. Perfect competition
7.1. Conditions
7.1.1. Many buyers and sellers
7.1.2. No barriers to entry or exit
7.1.3. Identical products
7.1.4. Perfect information
7.1.5. No externalities
7.1.6. No economies of scale
7.1.7. Each firm has no power over the price
7.1.8. Each firm will produce the output at which MC=MR, to maximise profits
7.2. If there are supernormal profits then new firms will enter the market and so the prices will fall and so the supernormal profit will reduce to normal profit
7.3. If there are losses in the industry then firms will leave the industry and the price will rise until normal profit is reached
8. Efficiency
8.1. Consumer surplus; the difference between the price a consumer is willing ot pay and the market price
8.2. Producer surplus; the difference between the market price and the price the producer is willing to supply at
8.3. Static efficiency is at a given time
8.3.1. Productive
8.3.1.1. The lowest point on the average costs curve
8.3.2. Allocative
8.3.2.1. When output is made in line with consumer preferences (P=MC)
8.3.3. X
8.3.3.1. When a firm fails to produce on their average cost curves due to organisational slack, often in a monopoly
8.4. Dynamic effeciency is over time
8.4.1. Product
8.4.1.1. New innovative products being introduced to the market
8.4.2. Process
8.4.2.1. New innovative methods of producing a product which will reduce the firms costs or change the balence of factor inputs
8.5. Economic efficiency occurs when there is both allocative and productive efficiency
9. Concentrated markets
9.1. Concentration ratio; the percentage of total market sales accounted for by a given number of firms (eg; C.R.4 is the value of output from the 4 largest firms in the industry/value of the output from the industry
9.2. Why firms grow
9.2.1. Market power
9.2.2. Objectives of managers
9.2.3. Profit
9.2.4. Economies of scale
9.2.5. Risk
9.2.5.1. diversifing production so if sales in one area fall another might rise
9.3. Internal/organic growth
9.3.1. Using retained profits or loans to increase fixed or variable factors
9.4. External growth (mergers)
9.4.1. Horizontal integration
9.4.1.1. When 2 buisnesses in the same industry at the same stage of production merge
9.4.2. Vertical integration
9.4.2.1. When 2 buisnesses in the same industry but in different stages of the supply chain merge
9.4.3. Lateral merger
9.4.3.1. A merger between related but not identical firms
9.4.4. Conglomerate merger
9.4.4.1. A merger between unrelated firms
10. Price discrimination
10.1. When a producer sells an identical product to different buyers at different prices for reasons unrelated to costs
10.2. Maximises profits
10.3. Conditions
10.3.1. 2 markets with differences is price elasticity of demand
10.3.2. Barriers between the markets to prevent re-sale of the good
10.4. 1st degree
10.4.1. Unique price for each person
10.4.2. Selling at the maximum price that the consumer is willing to pay
10.5. 2nd degree
10.5.1. Batches of a product
10.5.2. A lower price if you buy it in a batch rather than on its own
10.6. 3rd degree
10.6.1. Different segments of the market
10.6.2. Time
10.6.3. Geography
10.6.4. Status
10.6.4.1. eg; children and adults get different ticket prices
10.7. Consumer Surplus is normally reduced as much as possible
11. Monopoly
11.1. In theory it is when there is only one firm in the industry but in practise it is when a firm has more than 25% of the market share
11.2. Ways to asses monopoly power
11.2.1. number and closeness of substitutes
11.2.2. barriers to entry
11.2.2.1. protects monopoly power in the long run
11.2.2.2. high fixed costs
11.2.2.3. economies of scale
11.2.2.3.1. reduced costs
11.2.2.4. brand loyalty
11.2.2.5. legal barriers (patents)
11.2.2.6. control over the factors of production
11.2.2.7. control over retail
11.2.2.8. predatory pricing
11.2.3. product differentiation
11.3. With a monopoly the firm can choose the price it sells at as there is no competition
11.3.1. Normally when MC=MR (profit maximisation)
11.4. Strategic entry deterrence
11.4.1. Hostile takeovers
11.4.2. Product differentiation
11.4.3. Capacity expansion
11.4.4. Predatory pricing
11.5. Efficiency
11.5.1. Allocative inefficiency
11.5.1.1. price>MC
11.5.2. Productive inefficiency
11.5.2.1. not at the bottom of AC
11.5.3. X inefficiency
11.5.3.1. lack of competition means that they become lazy
11.5.4. Overall welfare loss
11.5.5. Dynamically efficient
11.5.5.1. supernormal profits can be reinvested
11.6. Benefits
11.6.1. Economies of scale
11.6.1.1. MC will fall and can lead a lower price for consumers
11.6.2. Reach MES with natural monopoly
11.6.2.1. productive efficiency
11.6.3. Dynamic efficiency from supernormal profits
11.6.4. Can be internationally competative
11.7. Costs
11.7.1. Higher prices
11.7.2. Lower output
11.7.3. Reduced consumer surplus
11.7.4. Allocative inefficiency
11.7.5. Productive inefficiency
11.7.6. X inefficiency