essay questions on market structure

Sample Economics Essay Questions – Market Structures

JC Economics Market Structures Essay Questions

Just like any game, knowing the rules of the game will certainly help you to understand and to win the game more effortlessly. This is the same for your upcoming Prelims or eventual GCE A-Level Econs exams for H2 students, focusing on essays on Market Structures . And one of the short-cuts for your H2 Econs (9757 Syllabus) is to look through a list of questions because they give you a specific way to process your thinking, and also to check whether you are familiar with the content topic you wish to focus on in JC Economics exams.

Often students struggle with essays because they see an novel question and they panic, or simply copy-&-paste from lecture notes. One easy way to solve this is to be exposed to the possible questions for the major topics so that you will be well-prepared. You need to become used to this process of looking at an unfamiliar question and connecting it with content knowledge you have— this is the key to scoring for H2 Economics.

Here is the listing of Market Structures essay question list:

Q1. Cathay Cineplexes is exploring the viability of going “ticketless” using mobile apps and the possibility of showcasing movies in 4D in the foreseeable future.

(a) Explain how a firm like Cathay Cineplexes is likely to determine its output and pricing decisions. [10] (b) Discuss if product differentiation is the best way for cinema operators in Singapore to compete. [15] (price discrimination)

Q2. Singapore’s latest attraction, Gardens by the Bay, comprises an Outdoor Gardens with free entry and two Cooled Conservatories with entry charges. Those living in Singapore, whether Singapore citizens or foreign residents, are charged the same lower rates, compared to tourists.

(a) Explain whether the above case is an example of price discrimination. (b) To what extent is the practice of price discrimination beneficial? (price discrimination)

Q3(a) Explain with diagrams how airlines and small clothing retailers engage in price discrimination and why are they able to do so. Q3(b) Discuss the extent to which these firms aim to maximise profits according to traditional economic theory. [13] (price discrimination)

Q4. Microsoft invests billions on Research and Development (R & D) which has contributed to a stream of innovations that have transformed business and the homes. To encourage innovation, intellectual property rights are given to innovators for a period of exclusivity to earn a reasonable return on their investment. Source: The Straits Times

(a) Explain how barriers to entry affect a firm’s pricing behaviour and profits earned. (b) To what extent is Microsoft’s market power justified? (Monopoly & Oligopoly)

Q5(a) Explain how perfectly and imperfectly competitive firms determine their price and output to maximize profits. [10] Q5(b) Discuss the extent to which firms in Singapore determine their price and output to maximise profits. [15] (perfectly and imperfectly competitive firms)

Q6. Many fast food chains pride themselves in offering various menus by adopting various pricing strategies. For example, KFC offers discounts for students while McDonald’s offers 6-piece nuggets at $4.40 and 9-piece nuggets at $5.70.

(a) Explain the factors that are necessary for price discrimination to occur. (b) Discuss whether price discrimination in the fast food industry is desirable. (price discrimination)

Q7(a) Explain how firms can increase their market power Q7(b) Discuss whether dominant firms are always desirable from a society’s point of view. (Monopoly & Oligopoly)

Q8. The level of merger and acquisition activities in Asia is expected to increase substantially with economic recovery and the return of the Asian economies to their pre-financial crisis growth path.

(a) Explain why firms attempt to grow through undertaking mergers and acquisitions. (b) Discuss whether such mergers and acquisitions are in the public interest and if there is a need for government intervention. (Market Dominance, a form of Market Failure )

Q9. Restaurants across Singapore are engaging in differential pricing strategy. whereby weekend dinners pay more than weekday customers and special discounts are offered to both students and senior citizens alike.

(a) Explain how restaurants in Singapore discriminate buyers by charging different prices for the same meals. (b) Discuss the extent to which barrier to entry is the most important factor influencing a firm’s behaviour in your country. (price discrimination)

Q10. In recent years, small local firms in the retail industries in Singapore are becoming bigger and at the same time many large foreign firms have entered these industries

a) Explain the possible reasons for the above changes in the retail industries in Singapore. b) Discuss the extent to which such changes are in the interest of consumers. (Monopoly & Oligopoly)

Q11. Oligopoly is the best market structure that is able to achieve efficiency, equity and innovation. Discuss. [25] (Oligopoly)

Q12(a) Explain why prices might fluctuate less in an oligopolistic market than in a perfectly competitive market. [10] Q12(b) Discuss whether monopolistic competition is more likely to be beneficial to consumers than oligopoly. (Monopolistic Competition & Oligopoly)

Q13. In Singapore, there are many small home interior design firms in the industry. With low startup costs, these firms, such as Meng Design, usually market themselves as providing exclusive designs or affordable services. On the other hand, in the budget airline industry. Jetstar and Tiger Airways often offer lower-priced tickets.

(a) According to economic theory, firms aim to become big to enjoy. Explain why some firms remain small in reality. (10) (b) Discuss whether Jetstar’s and Meng Design’s strategies are due to the features of the industry they are in [15] (Costs Theory & Firms’ Characteristics)

Q14.Globalisation increases the level of competition among firms in a country, thereby making markets more competitive resulting in increased consumer welfare.

Assess the extent to which globalisation will lead to more competitive markets and increased consumer welfare. [25] (Firms’ Performance)

Q15. There are four players in the retail petrol industry in Singapore – Exxon Mobil (Esso), Shell, Singapore Petroleum Company and Caltex. In 2011, the Competition Commission of Singapore led an inquiry to assess whether there is collusion between competitors in the industry.

(a) Explain how the features of the retail petrol industry in Singapore affect pricing and decisions in the industry. (b) Discuss the view that firms need to engage in collusion to increase profits. (Oligopoly)

Q16(a) Explain how the size of firms affects the price and output decisions of various firms. Q16(b) Discuss the extent to which large firms in an industry impede economic efficiency. (Firms’ Performance)

Q17. Explain why the behaviour of firms differs across industries and discuss if such behaviour is desirable. [25] (Firms’ Conduct)

Q18. AMR Corp, parent of American Airlines, bowed to pressure recently from its creditors. including its largest labour unions, and said it would explore merger options while it is still in bankruptcy. Its rival, US Airways Group Inc has been expressing major interest for a possible tie-up. Source: www.reuters.com, May 2012

(a) Explain how, in economic theory, airline firms like AMR Corp would price its tickets. [10] (b) Discuss if a merger between AMR Corp and US Airways Group Inc would benefit consumers more than producers. [15] (Firms’ Performance)

Q19. Singapore Post Limited (SingPost) has been steadily expanding beyond Singapore. It will continue to diversify its business and tap the overseas markets. Its online shopping platforms, VPOST and Clout Shoppe, will accelerate its expansion in the e-commerce business.

Discuss how SingPost’s growth strategies might impact SingPost, consumers and other firms in Singapore. [25] (Monopoly)

Q20. The UK rail industry is split into franchises, in which companies are invited to bid for the rights to operate individual rail routes for a specified time period. Train operators typically sell their tickets at a lower price if they are bought in advance on the internet, and they offer both first class and economy class tickets.

(a) Explain whether the above pricing policies could be considered to be examples of price discrimination. (b) Discuss whether the UK government should regulate prices in the rail industry to protect society’s interests. (price discrimination)

Q21. With the growing numbers of people connected to the internet, electronic commerce (e-commerce) is gaining rapid acceptance.

Discuss the view that with increasing development of the internet and e-commerce, monopolistic competition would gradually become the more prevalent market structure. [25] (Monopolistic Competition)

Q22(a) Using examples, explain how a firm can enjoy economies of scale. Q22(b) To what extent do you agree that oligopoly is the most desirable form of market structure in Singapore?

Q23 (a) With the use of examples, differentiate between the key features of the monopolistic competition and oligopoly. Q23 (b) Discuss whether the survival of firms in these two models is solely dependent on their competitive strategies.

Q24 (a) Explain how, in economic theory, a perfectly competitive firm would determine the price that would maximize profits. Q24 (b) Discuss whether firms set prices at profit-maximising level in reality. [15) (Firms’ Objectives)

Q25. Profitable firms are necessary efficient firms. Examine this assertion. [25]

Q26. Pfizer’s merger with competitor Pharmacia in 2003 made it the largest pharmaceutical company amongst some ten to twelve companies. Pfizer (that give us the COVID-19 vaccine ) also boasts the industry’s largest pharmaceutical Research and Development (R&D) organisation, which invests $7.6 billion in R&D on average annually.

(a) Identify the likely type of market structure Pfizer operates in, and distinguish its key features with perfect competition. [10] (b) Examine whether having large companies, such as Pfizer, in the pharmaceutical market could beneficial to society. [15]

Q27. In 2005, London Energy invested millions of pounds in research and development (R&D) but it would take about two years before the factories are to run efficiently, and to enjoy economies of scale.

(a) Explain how London Energy’s investment affects its profits in the short run and long run. [10m) (b) Economies of scale are said to be beneficial. This means that mergers of small firms should be encouraged. Discuss [15]

Q28. Discuss whether large firms have lower unit costs than that of small firms, and assess how the government can help smaller firms to lower their unit costs. [25]

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10 Questions on Market Structure (Economics)

The questions below on market Structure were curated from UNILAG’S Past Exam as it has been observed that questions are frequently asked on this topic almost every academic session. Click on this link to read on more topics in Economics.

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Questions on Market Structure

1. The conditions for profit maximization by a firm is that: (a) MC = AR and MC cuts MR from below (b) MC = MR and MC cuts MR from above (c) MC = MR and MC cuts MR from below (d) MC = AC and AR cuts MC from below

2. Which of the following is not a characteristic of perfect competition? (a) A large number of buyers and sellers (b) The existence of only zero profit in the short run (c) Uniform price (d) The absence of transparent cost (e) Free entry and free exit

3. Who is the originator of the theory of monopolistic competition? (a) R.A. Musgrave (b) J.M. Keynes (c) Joan Robinson (d) Adam Smith (e) E.H. Chamberlain

4. Product differentiation is a typical feature of: (a) Perfect competition (b) Oligopoly (c) Monopoly (d) Pure competition (e) Monopolistic competition

5. When the monopolist equates MC to MR then, the firm would be: (a) Maximizing output (b) Minimizing costs (c) Maximizing profit (d) Maximizing sales (e) Maximizing economies of scale

6. A monopoly is said to misallocate resources (a) because without competition there is no pressure on the firm to be efficient (b) because under certain circumstances different consumers are charged different prices for the same product or services (c) because the market price under monopoly is greater than the marginal cost of additional output (d) because it faces a downward-sloping demand curve

7. Which of the following is a unique characteristic of oligopoly? (a) production of a standardized product (b) the use of advertising and product development (c) mutual interdependence among firms in the industry (d) none of the above (e) the existence of barriers to entry including patents and copyrights

8. In a perfectly competitive market, the firm is in the long-run equilibrium when (a) There is excess profit (b) MR = ATC = MC = P (c) Price is stable (d) The price is greater than the average cost (e) None of the above

9. A profit-maximizing monopolist (a) follows the same rules for profit maximization as the perfectly competitive firm (b) follows different rules for profit maximization than does the perfectly competitive firm (c) will set price equal to marginal cost in order to determine the maximizing output (d) will set marginal cost equal to average revenue in order to determine the maximizing output

10. A profit-maximizing firm will always produce (a) where marginal cost is less than marginal revenue (b) where marginal revenue is equal to marginal cost (c) at a point of minimum average cost (d) where marginal cost is greater than marginal revenue (e) None of the above

Market Structure Essay Questions

1. Define Perfect Completion, Monopoly, Monopolistic Completion and Oligopoly. 2. Show with graphs on how firms maximize profit under Perfect Competition and Monopoly.

1 -C 2 -B 3 -E 4 -E 5 -C 6 -A 7 -C 8 -B 9 -A 10 -B

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Market Structures Essay

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Introduction

Types of market structures.

In an ordinary market structure, there is the assumption that there are several and different sellers and buyers. The result of this is fair competition where price of goods is determined by the forces of demand and supply. This is so because, in such a market, both the seller and buyer are equally able to influence the price.

However, this is not always the case. Some market industries have only a single seller or much fewer sellers than consumers, limiting the buyer’s ability to influence the price. This paper discusses the various market structures that exist in our market today and the various pricing strategies that could be applied in their management.

Pure monopoly

This type of market exists when there is only a single seller controlling the supply of goods or services in the entire market. He alone can control the price and prevents other businesses from entering the market. They commonly exist in a government-regulated setting. A case in point is the provision of electric and Natural gas utilities in the United States.

The government is the sole provider of these utilities and regulates their delivery to the public through the state, federal and local agencies. The prices are not arrived at through the forces of demand and supply but by the structures of the government. “The agencies govern the prices they charge, the terms of their services to consumers, their budgets and construction plans, and their programs for energy efficiency and other services,” (Regulatory Assistance Project 2011, P. 3).

Competition in this sector cannot thrive since the government provides subsidies to these utilities so as to provide cheaper services to the public, something that small private entities are unable to do. In addition, the infrastructural and technological requirement for the provision of the services would be so much of an expense for a private entity to meet.

Even though the government is the price maker here, it cannot set prices at a level that the consumer will not be able to afford if it wants to make profits. To set the prices, the monopolist should use the market demand curve and use it to set its own prices. The position marginal revenue for the monopolist should be less than the marginal revenue (MR). The position and elasticity of the demand curve works to limit the pricing mechanism of the monopolist.

The firm can only make maximum profits, on a short term, where the additional cost used to produce one more unit is equal to the resulting revenue from that one unit. For normal profits, the average revenue (AR) should be equal to the Average Total Cost (ATC). In the long run, the firm will only make profits where the AR is greater than the average cost (AC). (Mcconnel & Brue, 2009)

Pure Competition Market structure

This is a kind of a market where no single entity monopolizes the price determination process. Prices of goods are determined by forces of demand and supply and every player in the market has a part to play. A classic example would be a street vendor business.

In this kind of business, there is a large number of buyers and sellers and anyone may enter or leave the market at will without any barrier to doing so. Both consumers and producers are well informed of the prices and quality of goods and goods are homogenous across the market without much differentiation.

Every partaker is interested in maximizing profits as opposed to monopolizing the market whose returns are non-increasing to scale. Factors of production are freely mobile within the market with flexibility to ever-changing market circumstances. There are no new firms in the industry thus the same number of firms remains throughout.

In this market, the price is normally given by the demand and supply curve, as determined by the market forces, hence referred to as a ‘price taker’. The firm will sell its products at the current market prices and has no power to alter those prices. The stock is fixed while the supply curve will be perfectly elastic. In the short run, the firm can try to increase supply by increasing variable inputs. Profit will be maximized when MR is equal to MC. The firm must however fix their output to the prevailing market prices.

In the long run, the firm may change their unit of output as new firms enter the market. Supernormal profits will be realized where AR is greater than AC. When AR is greater than AC small firms starts quitting the market resulting into a decreased price. This will go on until AR is equal to AC and the firm makes normal profits. (McConnell & Brue, 2009)

Monopolistic Competition

This is a form of market where sellers deal with competitive products but which are differentiated from one another. It is almost like a perfect competition but though there are many firms in the industry, the products of each company are differentiated to make them unique to products of other firms.

An example is the Nike shoes. Even though many firms make shoes, which are equally competitive, only Nike makes that kind of shoe and one cannot obtain it from any other firm. The shoe is homogenous and specific to the firm and their differentiation gives monopoly over Nike to make the shoe alone.

Here, just like perfect market, the firm will take the market prices as determined by rival firms and will be forced to disregard their own influence on prices. In the short run, the firm may determine the prices depending on its level of differentiation and will have the same effects as a monopoly making huge economic prices.

However, as time goes by and competition increases, the effect of differentiation loosens gradually and the market changes to a perfect competitive one, with less profits. At the optimum quantity of production and optimum price, the firms will now earn normal profits. The equilibrium point, no new firms will be entering the industry.

Oligopoly market structure

This is a situation where there are few sellers of a commodity. The commodity being sold is however very similar but not identical to the others in the market. Products are close substitutes of each other but each firm has monopoly power over its own product. It also includes a duopoly where there are only two firms dealing with the product, e.g., Coca-cola and Pepsi. These two companies are the only known producers of carbonated soft drinks, yet their products are differentiated from each other.

For other firms to enter the market, they will require heavy investment and highly developed technology and incur high costs of promotion, thus posing a major barrier to entry of new firms and competition. The existing firms may also decide to merge, presenting even more difficulty to new entry. Both sellers have a substantial amount of influence on the pricing policies but there is mutual interdependency in price. The prices therefore remain relatively stable.

In this case, the pricing of Coca-cola will affect Pepsi’s price appreciably and the vice versa. Therefore, the best way is to agree, as between the two firms, on a pricing policy that is comfortable to the two firms. When such collusion of price determination occurs, the firms agree on an identical price, normally high, maximizing their profits and minimizing the production costs.

The pricing may be done through cost-plus pricing, which involves adding percentages of profit margin to Average Variables Cost to obtain the price. It may also be arrived at through the Mark-up pricing. Here the percentage mark-up it predetermined to cover the average margin. The AVC is estimated through the units of output produced over a given period of time. The level of output is used to determine the average cost.

Monopsony competition

Denotes a situation where one buyer buys from several existing sellers and he is therefore, the main determinant of the price in the entire market.

It is mostly found in the market for the exchange of factor services. The price he sets is lower than the market price and the quality exchanged is not correspondent to the price. For example, major sports clubs such as the National Baseball Association (NBA).

A baseball player wishing to be professional baseball player can only seek employment from NBA only. NBA will determine the minimum factor price which the player will and can take.

Though the monopsony is the price maker, if he wants to obtain quantity services, he has to part with a higher price or incur additional expenses or wages to hire more workers. The additional wages will enable him to earn more profits. These additional expenses are the marginal factor cost and the additional profits are the marginal revenue product. For maximization of profits, the firm should hire the quantity equal to the marginal factor cost and marginal revenue product, where these two curves meet, (Africa Awards, 2011).

The basic assumption of the existence of a perfect competitive market therefore, rarely exists. We have seen that there are markets dominated by one or two sellers or even one buyer.

Each market structure’s existence, however, is dependent on its power to influence the market price. There are also other minor types of markets that exist apart from the ones covered in this paper, for example a bilateral monopoly-duopsony, a market with two buyers and one seller. Also

Bilateral oligopoly-monopsony; one buyer and few sellers. However, all these are embedded in the five main ones discussed above.

Africa Awards. (2011). Market Structures: Monopsony , AmosWEB Encyclynomic WEB*pedia. Web.

McConnell, Campbell., & Brue, Stanley. (2009). Microeconomics: Principles, problems, and policies . New York: McGraw Hill. (18th Edition).

Regulatory Assistance Project. (2011). Electricity Regulation in the US: A Guide, Home Office, 50 State Street, Suite 3, Montpelier, Vermont 05602.

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IvyPanda. (2018, October 12). Market Structures. https://ivypanda.com/essays/market-structures/

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Types of market structure

• Perfect competition – Many firms, freedom of entry, homogeneous product, normal profit.
• Monopoly diagram
• Oligopoly diagram
• Collusive behaviour – firms seek to form an agreement to increase prices.
• Kinked demand curve model – when prices are stable and firms compete on non-price competition.
• Monopolistic competition – Freedom of entry and exit, but firms have differentiated products. Likelihood of normal profits in the long term.
• Contestable markets – An industry with freedom of entry and exit, low sunk costs. The theory of contestability suggests the number of firms is not so important, but the threat of competition.
• Duopoly  – where two firms dominate the market. For example, Pepsi and Coca Cola. Android vs Apple. A duopoly falls between a monopoly and oligopoly.

Related pages

• Objectives of firms
• Bertrand competition – (a competitive duopoly)

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Market Structure

How different industries are classified and differentiated based on their degree and nature of competition for services and goods

What is Market Structure?

Market structure, in economics, refers to how different industries are classified and differentiated based on their degree and nature of competition for goods and services. It is based on the characteristics that influence the behavior and outcomes of companies working in a specific market.

Some of the factors that determine a market structure include the number of buyers and sellers, ability to negotiate, degree of concentration, degree of differentiation of products , and the ease or difficulty of entering and exiting the market.

• Market structure refers to how different industries are classified and differentiated based on their degree and nature of competition for services and goods.
• The four popular types of market structures include perfect competition, oligopoly market, monopoly market, and monopolistic competition.
• Market structures show the relations between sellers and other sellers, sellers to buyers, or more.

Understanding Market Structures

In economics, market structures can be understood well by closely examining an array of factors or features exhibited by different players. It is common to differentiate these markets across the following seven distinct features.

• The industry’s buyer structure
• The turnover of customers
• The extent of product differentiation
• The nature of costs of inputs
• The number of players in the market
• Vertical integration extent in the same industry
• The largest player’s market share

By cross-examining the above features against each other, similar traits can be established. Therefore, it becomes easier to categorize and differentiate companies across related industries. Based on the above features, economists have used this information to describe four distinct types of market structures. They include perfect competition, oligopoly market, monopoly market, and monopolistic competition.

Types of Market Structures

1. perfect competition.

Perfect competition occurs when there is a large number of small companies competing against each other. They sell similar products (homogeneous), lack price influence over the commodities, and are free to enter or exit the market.

Consumers in this type of market have full knowledge of the goods being sold. They are aware of the prices charged on them and the product branding . In the real world, the pure form of this type of market structure rarely exists. However, it is useful when comparing companies with similar features. This market is unrealistic as it faces some significant criticisms described below.

• No incentive for innovation: In the real world, if competition exists and a company holds a dominant market share, there is a tendency to increase innovation to beat the competitors and maintain the status quo. However, in a perfectly competitive market, the profit margin is fixed, and sellers cannot increase prices, or they will lose their customers.
• There are very few barriers to entry: Any company can enter the market and start selling the product. Therefore, incumbents must stay proactive to maintain market share.

2. Monopolistic Competition

Monopolistic competition refers to an imperfectly competitive market with the traits of both the monopoly and competitive market. Sellers compete among themselves and can differentiate their goods in terms of quality and branding to look different. In this type of competition, sellers consider the price charged by their competitors and ignore the impact of their own prices on their competition.

When comparing monopolistic competition in the short term and long term, there are two distinct aspects that are observed. In the short term, the monopolistic company maximizes its profits and enjoys all the benefits as a monopoly.

The company initially produces many products as the demand is high. Therefore, its Marginal Revenue (MR) corresponds to its Marginal Cost (MC). However, MR diminishes over time as new companies enter the market with differentiated products affecting demand, leading to less profit.

3. Oligopoly

An oligopoly market consists of a small number of large companies that sell differentiated or identical products. Since there are few players in the market, their competitive strategies are dependent on each other.

For example, if one of the actors decides to reduce the price of its products, the action will trigger other actors to lower their prices, too. On the other hand, a price increase may influence others not to take any action in the anticipation consumers will opt for their products. Therefore, strategic planning by these types of players is a must.

In a situation where companies mutually compete, they may create agreements to share the market by restricting production, leading to supernormal profits. This holds if either party honors the Nash equilibrium state and neither is tempted to engage in the prisoner’s dilemma. In such an agreement, they work like monopolies. The collusion is referred to as cartels.

4. Monopoly

In a monopoly market, a single company represents the whole industry. It has no competitor, and it is the sole seller of products in the entire market. This type of market is characterized by factors such as the sole claim to ownership of resources, patent and copyright, licenses issued by the government, or high initial setup costs.

All the above characteristics associated with monopoly restrict other companies from entering the market. The company, therefore, remains a single seller because it has the power to control the market and set prices for its goods.

Related Readings

Thank you for reading CFI’s guide on Market Structure. To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

• Herfindahl-Hirschman Index (HHI)
• Imperfect Competition
• Legal Monopoly
• Nash Equilibrium
• See all economics resources

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Home — Essay Samples — Business — Amazon — Market Structure Analysis – Amazon

Market Structure Analysis – Amazon

• Categories: Amazon

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Published: Jan 29, 2024

Words: 382 | Page: 1 | 2 min read

Table of contents

Overview of amazon's market structure, dominance of amazon in the e-commerce market, oligopolistic aspects of amazon's market structure, analysis of amazon's pricing strategy, antitrust and regulatory concerns.

• References> Evans, D. S. (2018). The antitrust economics of two-sided markets. Competition Policy International. Khan, L., & Vahe, R. (2016). Market power and inequality: The antitrust counterrevolution and its discontents. Harvard Law Review. Picker, R. (2017). Antitrust, competition policy, and inequality. The Antitrust Bulletin. Stucke, M. E., & Grunes, A. P. (2016). Big data and competition policy. Oxford University Press.

References> Evans, D. S. (2018). The antitrust economics of two-sided markets. Competition Policy International. Khan, L., & Vahe, R. (2016). Market power and inequality: The antitrust counterrevolution and its discontents. Harvard Law Review. Picker, R. (2017). Antitrust, competition policy, and inequality. The Antitrust Bulletin. Stucke, M. E., & Grunes, A. P. (2016). Big data and competition policy. Oxford University Press.

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Application Questions - Market Structures

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1 Introduction to Markets

1.1 Nature of Economics

1.1.1 Economics as a Social Science

1.1.2 Positive & Normative Economic Statements

1.1.3 The Economic Problem

1.1.4 Resources

1.1.5 Production Possibility Frontiers

1.1.6 Specialisation & Division of Labour

1.1.7 Types of Economies

1.1.8 End of Topic Test - Nature of Economics

1.1.9 Application Questions - Nature of Economics

1.2 How Markets Work

1.2.1 Rational Decision Making

1.2.2 Demand

1.2.3 Elasticities of Demand

1.2.4 Elasticities of Demand 2

1.2.5 Elasticity & Revenue

1.2.6 Supply

1.2.7 Elasticity of Supply

1.2.8 Price Determination

1.2.9 Price Mechanism

1.2.10 Consumer & Producer Surplus

1.2.11 Indirect Taxes & Subsidies

1.2.12 A-A* (AO3/4) - Taxing Prices or Quantities?

1.2.13 Alternative View of Consumer Behaviour

1.2.14 End of Topic Test - Markets

1.2.15 A-A* (AO3/4) - Markets

2 Market Failure

2.1 Market Failure

2.1.1 Types of Market Failure

2.1.2 Externalities

2.1.3 The Deadweight Welfare Loss of Externalities

2.1.4 A-A* (AO3/4) - The Externalities of Education

2.1.5 Public Goods

2.1.6 Information Gaps

2.1.7 End of Topic Test - Market Failure

2.1.8 Application Questions - Market Failure

2.2 Government Intervention

2.2.1 Government Intervention in Markets

2.2.2 Subsidies & Price Controls

2.2.3 Pollution Permits & Regulation

2.2.4 A-A* (AO3/4) - European Emissions Trading

2.2.5 State Provision & Information Provision

2.2.6 Government Failure

2.2.7 End of Topic Test - Government Intervention

2.2.8 A-A* (AO3/4) - Government Intervention

3 The UK Macroeconomy

3.1 Measures of Economic Performance

3.1.1 Measuring Economic Growth

3.1.2 National Income Data

3.1.3 Inflation

3.1.4 Causes of Inflation

3.1.5 Consequences of Inflation

3.1.6 Employment & Unemployment

3.1.7 Causes & Impact of Unemployment

3.1.8 A-A* (AO3/4) - Hysteresis

3.1.9 Balance of Payments

3.1.10 Current Account Deficit & Imbalances

3.1.11 End of Topic Test - Economic Performance

3.1.12 Application Questions Macroeconomy

3.2 Aggregate Demand

3.2.1 Aggregate Demand

3.2.2 Consumption

3.2.3 Investment

3.2.4 Government Expenditure

3.2.5 Net Trade

3.2.6 End of Topic Test - Aggregated Demand

3.2.7 Application Questions - AD

3.3 Aggregate Supply

3.3.1 Aggregate Supply

3.3.2 End of Topic Test - Aggregated Supply

3.3.3 A-A* (AO3/4) -Aggregate Supply

3.4 National Income

3.4.1 National Income

3.4.2 Injections & Withdrawals

3.4.3 Equilibrium Level of Real National Output

3.4.4 Multiplier Effect

3.4.5 End of Topic Test - National Income

3.4.6 Application Questions - National Income

3.5 Economic Growth

3.5.1 Causes of Economic Growth

3.5.2 Output Gaps

3.5.3 Business Cycle

3.5.4 Impact of Economic Growth

3.5.5 End of Topic Test - Economic Growth

3.5.6 A-A* (AO3/4) - Growth

4 The UK Economy - Policies

4.1 Macroeconomic Objectives & Policies

4.1.1 Possible Objectives

4.1.2 Demand-Side Policies - Monetary

4.1.3 Demand-Side Policies - Monetary 2

4.1.4 A-A* (AO3/4) - The Future of Interest Rates

4.1.5 Demand-Side Policies - Fiscal

4.1.6 Demand-Side Policies in 2007-08

4.1.7 Strengths & Weaknesses of Demand Side

4.1.8 Supply-Side Policies

4.1.9 Supply-Side Policies 2

4.1.10 Conflicts Between Objectives

4.1.11 A-A* (AO3/4) - Conflicting Incentives

4.1.12 Phillips Curve

4.1.13 End of Topic Topic - Policies & Objectives

4.1.14 Application Questions - UK Policies

5 Business Behaviour

5.1 Business Growth

5.1.1 Size & Types of Firms

5.1.2 Business Growth

5.1.3 Pros & Cons of External Expansion

5.1.4 Demergers

5.1.5 End of Topic Test - Business Growth

5.1.6 A-A* (AO3/4) - Business Growth

5.2 Business Objectives

5.2.1 Business Objectives

5.2.2 End of Topic Test - Business Objectives

5.2.3 Application Questions - Business Objectives

5.3 Revenues, Costs & Profits

5.3.1 Revenue

5.3.2 Costs

5.3.3 Economies & Diseconomies of Scale

5.3.4 Profits

5.3.5 Profits 2

5.3.6 End of Topic Test - Revenue, Costs & Profits

5.3.7 A-A* (AO3/4) - Revenue, Costs & Profit

6 Market Structures

6.1 Market Structures

6.1.1 Efficiency

6.1.2 Perfect Competition

6.1.3 Perfect Competition 2

6.1.4 Monopolistic Competition

6.1.5 Oligopolies

6.1.6 The Prisoner's Dilemma

6.1.7 Collusion in Oligopolistic Markets

6.1.8 A-A* (AO3/4) - Which Factors Affect Collusion?

6.1.9 Monopolies

6.1.10 Price Discrimination

6.1.11 Monopsony

6.1.12 A-A* (AO3/4) - Models in Economics

6.1.13 Contestability

6.1.14 Benefits of Contestability

6.1.15 End of Topic Test - Market Structures

6.1.16 Application Questions - Market Structures

6.1.17 A-A* (AO3/4) - Cereal Collusion

6.2 Labour Market

6.2.1 Demand for Labour

6.2.2 Supply of Labour

6.2.3 Labour Market Imperfections

6.2.4 A-A* (AO3/4) - Labour Productivity & Unemployment

6.2.5 A-A* (AO3/4) - What Level of Unionisation is Good?

6.2.6 Wage Determination

6.2.7 Elasticity of Labour Supply & Demand

6.2.8 Intervention in Setting Wages

6.2.9 End of Topic Test - Labour Market

6.2.10 A-A* (AO3/4) - Labour Markets

6.3 Government Intervention

6.3.1 Reasons for Government Intervention

6.3.2 Government Promotion of Competition

6.3.3 Usefulness of Competition Policy & Examples

6.3.4 A-A* (AO3/4) - Modern Competition Policy

6.3.5 Privatisation

6.3.6 Government Regulation

6.3.7 A-A* (AO3/4) - Nationalisation vs Privatisation

6.3.8 Government Protection of Suppliers and Employees

6.3.9 Impact of Government Intervention

6.3.10 End of Topic Test - Government Intervention

6.3.11 Application Questions - Government Intervention

7 A Global Perspective

7.1 International Economics - Globalisation & Trade

7.1.1 Globalisation

7.1.2 Globalisation for LEDCs

7.1.3 Globalisation for MEDCs

7.1.4 Specialisation & Trade

7.1.5 Pattern of Trade

7.1.6 Terms of Trade

7.1.7 Trading Blocs

7.1.8 UK, EU & WTO

7.1.9 End of Topic Test - Globalisation & Trade

7.1.10 A-A* (AO3/4) - Globalisation & Trade

7.2 International Economics - Currency

7.2.1 Merged Currency

7.2.2 Restrictions on Free Trade

7.2.3 Arguments for Protectionism

7.2.4 Arguments Against Protectionism

7.2.5 Balance of Payments

7.2.6 Balance of Payments 2

7.2.7 Floating Exchange Rates

7.2.8 Fixed Exchange Rate

7.2.9 International Competitiveness

7.2.10 End of Topic Test - International Economy

7.2.11 Application Questions - International Economics

8 Finance & Inequality

8.1 Poverty & Inequality

8.1.1 Absolute & Relative Poverty

8.1.2 Inequality

8.1.3 Inequality 2

8.1.4 Lorenz Curve

8.1.5 Government Policy on Poverty

8.1.6 End of Topic Test - Poverty & Inequality

8.1.7 A-A* (AO3/4) - Inequality & Poverty

8.2 Emerging & Developing Economies

8.2.1 Measures of Development

8.2.2 Factors Influencing Growth & Development

8.2.3 Barriers to Development

8.2.4 Barriers to Development 2

8.2.5 A-A* (AO3/4) - The Bottom Billion

8.2.6 Development Strategies

8.2.7 Interventionist Strategies

8.2.9 International Institutions

8.2.10 International Institutions 2

8.2.11 End of Topic Test - Emerging & Developing

8.2.12 Application Questions - Developing Countries

8.3 The Financial Sector

8.3.1 Role of Financial Markets

8.3.2 Market Failure in the Financial Sector

8.3.3 Role of Central Banks

8.3.4 End of Topic Test - The Financial Sector

8.3.5 A-A* (AO3/4) - Financial Sector

8.4 Role of the State in the Macroeconomy

8.4.1 Public Expenditure

8.4.2 Taxation

8.4.3 Public Sector Finances

8.4.4 End of Topic Test - Role of the State

8.4.5 Application Questions - Role of the State

9 Examples of Global Policy

9.1 International Policies

9.1.1 Global Debt & Deficit Policies

9.1.2 Poverty & Inequality Policies

9.1.3 Changes in Interest Rates

9.1.4 Competitiveness Policies

9.1.5 End of Topic Test - International Policies

9.1.6 A-A* (AO3/4) - International Policies

9.2 Policy Responses to Shocks

9.2.1 International Tax Policies

9.2.2 Problems for Policymakers

9.2.3 End of Topic Test - Policy Responses

9.2.4 Application Questions - Policy Responses

End of Topic Test - Market Structures

A-A* (AO3/4) - Cereal Collusion

Market Structure ( CIE IGCSE Economics )

Topic questions.

In some industries, a monopoly controls output and prices.

What is the most likely impact of this on consumers?

higher prices

higher profits

higher taxes

more choice

Choose your answer

Did this page help you?

Which combination of characteristics correctly describes a monopoly?

Which combination is usually found in a monopoly?

many buyers and many sellers

many buyers and single seller

single buyer and many sellers

single buyer and single seller

Which characteristic can exist both in monopoly and in a competitive market?

freedom of entry

many buyers

many sellers

perfectly elastic demand curve

What is a key advantage of competitive markets for consumers?

Limited product variety and choices

Higher prices due to lack of competition

Lower prices and increased product variety

Reduced quality of goods and services

What is found in a competitive market?

Every firm earns large profits.

Firms with limited capital can enter the market.

The costs of production are always lower than in a monopoly.

There is limited choice for consumers.

Why might a government encourage a monopoly?

It can compete against foreign firms.

It can have high average costs.

It can make excessive profits.

It can prevent innovation.

What is characteristic of a monopoly market structure?

A monopolist may determine the price of its product.

A monopolist’s product has many substitutes.

There are no external costs.

There is easy entry into the market.

Which international market is the most competitive?

foreign currency

petrol (fuel)

washing machines

How do firms in competitive markets influence prices?

They can set prices at any level they prefer

They accept the market price as given

They collaborate to fix prices

They set prices based on production costs

The table shows characteristics of a market.

What are the characteristics of a competitive market?

What impact might an increase in the number of competitors have on a competitive market?

It could lead to higher prices for consumers

It might decrease demand for the product

It could enhance consumer choice and reduce prices

It might lead to lower product quality

What are the characteristics of a monopoly market?

What impact might a lack of competition have on innovation in a monopoly market?

It encourages firms to invest heavily in research and development

It leads to rapid innovation due to rivalry among competitors

It often leads to slower innovation and complacency

It results in constant product upgrades and improvements

What benefit might a monopoly market offer in terms of economies of scale?

Limited opportunities for cost reduction

Reduced efficiency in production due to  the large scale

Higher production costs and prices for consumers

Cost reduction and better efficiency in production

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Essay on Oligopoly and Collusion

Last updated 3 Feb 2019

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Here is what I feel is a superbly clear and well-structured essay answer to a question on the economic and social effects of collusion within an oligopoly.

Evaluate the view that collusion between firms in an oligopoly always works against consumer and society’s interests. Use game theory in your answer.

An oligopoly is where the industry or market is dominated by a few producers/firms with a high level of market concentration, where the component firms have a high level of interdependent decision making. Collusion can be tacit and/or explicit, and the aim of which is to achieve higher supernormal profits, with the firms as a whole achieving joint profit maximisation. Collusion between firms is harmful to consumers. This is because firms collude to raise prices, as mentioned earlier, resulting in the price level seen below. This reduces the consumer surplus available, reducing the welfare of individuals. This can often be highly regressive, if the impact of increased prices, such as with the Big Six Gas Suppliers, has a disproportionate impact on the less well off. Furthermore, because firms are working together, with internal quotas to divide up sales, there is less need to compete, resulting in less dynamic efficiency. This results in less innovation, and thus little improvement in the quality of products available to individuals. Indeed, the UK Competition and Markets Authority supports this claim, arguing that collusion can result in “reductions of output, efficiency, innovation and choice, all of which are harmful to consumers.” An example of this can be seen with Apple, who were sued by consumers for price-fixing with publishers to force consumers to over pay for e-books.

However, collusion between firms can often derive benefits for consumers. For instance, tacit collusion includes firms who monitor what other firms sell to ensure that they are matching the cheapest price in a geographical area, or who market that consumers are “never knowingly undersold” such as John Lewis. This is a case in which firms are technically engaging in tacit collusion, but which may also result in driving down of prices as firms seek to match improvements in cost efficiencies made by other firms. This is also true with products such as mobile phone contracts where it is easy to compare prices.

Collusion in an oligopoly can hugely benefit firms, which can have beneficial consequences for society. For instance, collusion between coffee growers allows small firms to push for fairer prices against more dominant monopsonistic corporations such as Starbucks. Furthermore, because these producer cooperatives like Fairtrade are often based overwhelmingly in less developed regions, this can also be useful in helping to alleviate extreme poverty. Furthermore, collusion allows for firms to lower the costs of competition, that can then be passed onto consumers. Because oligopolies exist in highly concentrated markets dominated by a few firms, there is often a huge degree of branding and differentiation that needs to take place in order for firms to stand out, e.g. with the UK retail banking industry with firms such as Barclays and HSBC. If all firms engage in marketing wars, there is no net societal benefit. However, if firms collude, they can reduce the need to fund these marketing wars, that can allow for cost savings to be passed onto consumers. Additionally, collusion allows for agreed upon industry standards, for instance with procedures in testing on humans in pharmaceutical research, which benefits both consumers and firms.

However, the extent to which this occurs depends on a few factors. Firstly, the vast majority of collusion that takes place isn’t that of poor farmers working together - oligopolies are more concentrated industries with very high barriers to entry, such as the Big Four Accountancy Firms, and pharmaceutical companies. Furthermore, the benefits that accrue from firms working together are dependent on those firms passing those cost savings onto consumers - however, if they are all explicitly colluding, they may decide to spend that money on share buy-back schemes and dividends, which may not benefit society at large. Indeed, in 2017, US firms spent more money on share buy-backs than they did on research and development. Lastly, the benefits from firms agreeing upon industry standards are likely to be very marginal given the government and regulatory bodies, such as the Financial Conduct Authority (FCA) tend to set industry standards centrally.

Conclusion:

In conclusion, the extent of the impact on consumers and firms depends fundamentally on how long the oligopoly is able to carry on collusion - we can analyse this through game theory. Assuming the following pay offs in a cartel such as OPEC, where states agree to collude to reduce production levels and benefit from a higher price:

If all firms cooperate, they will achieve £4bn revenue. However, if one firm decides to defect and to increase production while still gaining from higher prices, they will gain £5bn. The socially optimal equilibrium in this model (for firms) is to cooperate, because the total utility is greater than any other option. However, this is an unstable equilibrium: no matter what the other firm does, each agent is better off by defecting, resulting in a Nash equilibrium of Defect, Defect. Indeed, this model can be shown by how in October 2018, Iran accused Saudi Arabia and Russia of breaking OPEC’s agreement on cutting output. Thus, the effects of collusion are very much dependent on how long it is able to last.

Author: Cary Godsal (February 2019)

More resources available here on the topic of oligopoly

• Tacit Collusion
• Overt collusion
• Game Theory
• Nash Equilibrium

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