Characteristics of Economic Markets

Number of firms Many independent firms. None able to control the market. Many firms providing similar goods and services. A few large firms providing similar goods and services. A single large firm. Control over price None. Market determines price. Influence limited by the availability of substitutes. Often influenced by a “price leader.” Much control. Product different-tiation None. Products uniform and of equal quality. Products and services differentiated to meet the needs of specific markets. Significant for some products like automobiles. Little for standardized products like gasoline. None. Ease of entry Relatively easy to enter or leave the market. Relatively easy to enter or leave the market. Difficult. Often requires large capital investments Very difficult.

 

Exercise 1. Listening from Guide to Economics, unit 6”Market structures” – track 17

Write out definitions for the following terms: imperfect competition, monopoly, monopsony, oligopoly.

Exercise 2. Match up these words with the definitions below:

barriers to entry

monopolistic competition

oligopoly

dominant-firm oligopoly

monopoly          

natural monopoly

cartel

economies of scale

perfect competition

monopsony

 

               

1…………. exists when products are homogeneous, and there are a great many firms too small to have any influence on the market price, and firms can easily enter and exit the industry.

 

2. A …………. is a market in a particular product in which a single producer can fix an artificial price.

 

3. ………. is the situation in which there is only one buyer.

 

4. A………. is an industry in which the efficient existence of more than one producer is impossible; examples include public utilities such as water, gas and electricity, where it would be inefficient to have several competing companies laying their own networks of pipes or cables.

 

5. ………. exists when many producers of slightly differentiated products are able to sell them at well above their marginal cost. 

 

6. An………. is a concentrated market dominated by a few large suppliers. This is very frequent in manufacturing because of economies of scale and the cost barriers of entering an industry.

 

7. ………. are factors which cause the average cost of producing something to fall as output increases.

 

8. ………… are economic or technical factors that make it difficult or impossible for firms to enter a market or compete with existing suppliers.

 

9. A ……… is one in which a market leader can indicate its preferred price to smaller competitors.

 

10. A ……… is a group of producers or sellers who fix prices and quantities in order to avoid competition and increase profits. This is illegal in many countries, most notably the USA.

Exercise 3.

Rearrange the following sentences and part-sentences to make-up a short text about market concentration like this:

- begin with a paragraph containing arguments both against and in favour of monopoly

- continue with a paragraph defending or justifying market concentration

- end with a paragraph arguing that monopolies are always short-lived, and so not a problem.

 

A. According to this position, the government only needs to ensure that there is no monopoly over important inputs, because there will never be a monopoly of scientific or artistic genius or business ideas.

 

B. According to this view, market concentration arises naturally from a few successful firms growing larger as a result of increased efficiency, innovation, and economies of scale in production, distribution, R & D, capital financing, and so on.

 

C. a counter argument is that erecting barriers – for example, by process innovation, product differentiation, persuasive advertising, or pricing policy – in order to be successful and to make competitors less successful, is a normal part of rivalry and competition.

 

D. Although some people argue that any barrier to competition will inevitably lead to inefficiency,

 

E. An example here would be telecommunications.

 

F. and businesses facing no competition have no incentive to find ways to reduce costs.

 

G. Even the profits made by a natural monopoly will be temporary, because they are an incentive for entrepreneurs to discover and implement new low-cost technologies.

 

H. For example, although entrepreneurs introduce new products and techniques and open up new markets, their profits are soon competed away by rivals.

 

I. it is right that inventors should be granted a temporary monopoly as a reward for innovation or discovery.

 

J. monopolists are always able to make excessive profits,

 

K. Some people even argue that monopolies are always temporary and consequently not a problem.

 

L. The arguments against market concentration, or at least against monopoly, are obvious:

 

M. The only common argument in favour of monopoly concerns patents:

Discussion: Which of these arguments (or sets of arguments) do you find the most persuasive?