Please enable JavaScript.

Coggle requires JavaScript to display documents.

MARKET POWER - Coggle Diagram

- - - - Advantages: :check:
        
        Economies of scale
        
        Product variety through
        product development
        
        Increase efficiency through
        technological innovation
      - Disadvantages: :red_cross:
        
        Welfare loss, allocative inefficiency
        and market failure
        
        Higher price with lower output
        
        Loss of consumer surplus
        
        High production cost
        
        Possibly less innovative
        
        Difficulty to detect collusion
      - Interdependence characteristics
        1. Strategic behavior: Action taken based on rivals possible action
        2. Conflict incentives:
        
        Incentives to collude: collusion = agreement between firms to limit competition between them, usually by fixing price
        
        Incentive to compete/cheat in a collusive agreement:
        cheat on partner to increase P
        
        Game theory:
- - - - -high product differentiation, increase inelastic in demand, increase market power. increase profit in short-run
        -Product differentiation cause allocative inefficiency.
        However, it is acceptable because consumers are able to enjoy product variety.
- - - - Barrier to entry:
        
        Economies of scale
        
        Natural Monopoly
        
        Branding
        
        Legal barriers
        
        control of essential resources
        
        2 more items...
        
        Patents-rights given by gov. to new invention
        
        Licenses- for particular professions and industries (medicine, law)
        
        Copyright- Author have side right
        
        Tariff, quota, trade restriction- limit import
        
        Loss of consumer surplus
        
        Firms with economies of scale so large that they can produce for an entire market demand
        
        Large firm offer lower price than new entrance bcs they have lower AC
      - evaluation
        
        Disavantages :red_cross:
        
        Advantages :check:
        
        Economies of scale
        
        Natural monopoly
        
        Product development and
        technological innovation
        via R&D (Large fund for R&D
        because of abnormal profit)
- - - - perfect information: All producers and consumers have a perfect knowledge of the market
        
        Advantage:check:
        
        Allocative efficiency
        optimum allocation of resources,
        achieved when P=MC in LR
        
        Low price for consumers
        Normal profit, so lower price
        
        Increase efficiency
        Perfect competition leads to
        inefficiency firms leaving the
        industry
        
        Market respond to consumer
        taste.
        Change in consumer taste is
        reflected in market D and P
        
        Disadvantage :red_cross:
        
        Unrealistic assumptions
        Rare in real world
        
        Can't enjoy the benefits of
        economies of scale
        Firms are too small to grow
        big enough to enjoy it
        
        Lack of product variety
        All firms sell homogenous
        products. Consumers prefer
        product variety
        
        Limited new product
        development
        Normal profit in LR, so firms
        don't have fud to do R&D
- - - - SR profit maximisation
      - LR allocative efficiency
    - - SR equilibrium
      - LR equilibrium