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Market structure, image - Coggle Diagram

- - - - Monopsony is an industry where there is only one buyer. This means lower prices for consumers but less profit to suppliers. Workers likely have more secure jobs. The monopsony will see lower costs, translating into lower prices or higher profits. However if the suppliers fail, the monopsony will struggle
      - Monopsony power leads to monopoly power
  - - - Low incentive to cut costs (diseconomies), innovate, improve productive or alloctive efficiency plus tackle x-inefficiency make incumbent monopoly vulnerable to attack (creative destruction). Principal-agent problem- reduces possible profits to be made.
        Attracting regulatory investigations - fines and forced demergers
    - - Higher prices and restricted choice - loss of consumer surplus
    - - Monopsony abuse - exploitative wages and conditions unless powerful trade union.
  - - - Increased profits from higher prices and restrictive choices, economies of scale, dynamic efficiency, political power through regulatory capture, higher levels of investment
    - - Economies of scale and dynamic efficieny may lead to cheaper and higher quality products
    - - More profits means higher wages and more job security, as well as opportunities for advancement
- - - - Price rigidity (kinked demand curve) is one theory of pricing that suggests that firms will respond differently to price increases than decreases. If a firm increases its price, it will see a more than proportionate fall in sales as other firms' prices are rigid. It will not lose all due to non price factors. If a firm reduces its price, others will as well to retain market share. But this fails to explain where the curve kinks, or why price wars start.
      - Price wars suggest that firms in the industry may compete on low prices, in order to maximise their market share. This will see prices falling as firms rely on each other's pricing decisions. This is beneficial to consumers as prices fall but profits are lower than otherwise.
      - Cost plus pricing is where oligopolistic firms simply set prices at their ATC and add a % of profit on top. Prices rise and fall as costs of production change both due to internal economies/diseconomies of scale and external.
      - Anti Competitive pricing is when firms engage in limit or predatory pricing. Limit pricing is when firms intentionally lower prices lower than they could be, sacrificing supernormal profit in order to prevent new firms from entering the market due to low prices that require large economies of scale. predatory pricing is the same, but when the aim is to push out an existing firm.
    - - Can be product quality (resulting from dynamic efficiency), reliability, opening or delivery hours, customer service brand loyalty or ethics.
  - - - Tacit collusion occurs when firms don't explicitly organise or meet to discuss collusion. It mostly occurs through price leadership, where the most dominant firms sets a price and the other follow, leading to all setting a higher price and earning higher profits.
    - - Firms overtly agree to collude to raise prices or restrict output, forming a 'cartel'. This is easier for regulators to find and break apart.
    - - Small number of firms colluding, meaning reaching agreements is easier as is monitoring members
      - Barriers to entry are very high, so new firms can't enter the market and disrupt the collusive group
      - Firms have similar costs and prices, so a single price will be acceptable to all firms
- - - - Very few barriers to entry, all a seller needs to enter the market is a vegetable bed or an allotment. Obviously there are barriers to increasing production to farm sized levels, but lots of capital is rentable
      - Some regulatory barriers but minimal, same with knowledge barriers (learning to grow food is fairly easy)
    - - Especially at the lower end of the market, fixed costs are fairly low, however they are between 30-50% at larger outputs
      - Sunk costs are relatively low as if you wish to exit the industry most capital can be resold, and there is little to no advertising
      - Price is set by market forces at the allocatively efficient account, as farmers cannot differentiate their products (apart from organic/inorganic) and there are many different buyers
      - Risk of monopsony power when selling to supermarkets
    - - Regulation is much more stringent in livestock farming, as there are animal welfare issues
      - Extensive environmental regulation to reduce the negative externalities of production, such as fertiliser runoff leading to eutrophication in rivers
- - - - Barriers to entry are low but not nonexistent. The primary barrier is the high output required to reduce the average fixed costs of renting or buying a shop floor
      - Some regulatory barriers such as allergen and health and safety regulation
      - Largest barrier to entry is established branding of brands like Costa, Starbucks and Cafe Nero, however this will only become significant when attempting to increase scale
    - - Fixed costs are relatively low, only the cost of the shop floor and a small amount of specialised capital (coffee machine). Variable costs make up the most, requiring baristas, supplies of beans, energy, and milk among other costs
      - Product differentiation (customer service and service speed, regular coffee versus nitro cold brew) means shops have some price setting power and a downwards sloping AR curve, however price setting power is limited due to the number of firms in the market
      - Low barriers to entry mean the threat is very high, so supernormal profits will likely be short lived, although the growing market means most make a profit of 12%
- - - - Given its status as a natural monopoly, OFWAT is unable to effectively promote competition, as it would be an inefficient use of scarce resources
    - - OFWAT encourages the installation of water meters which ensure that consumers are well aware of how much they have used and what their price can be. This prevents unexpected consumers from being charged more
    - - OFWAT's main tool of regulation is price controls, which allows Thames Water to raise prices in an RPI-X+K formula, however this can be undermined by shareholder payouts and asymmetric information. Regulatory capture also happens, with a scandal about OFWAT chairman dinners with water executives