MARKET STRUCTURE Perfect competition MonopolyOligopoly

Monopoly? What do you think a monopoly is? What is the aim of the game Monopoly? What do you think are the key characteristics of a monopoly? (try to remember the key characteristics of competitive markets) Can you think of any monopolies?

What is a monopoly? And what is monopoly power? Aims Explain the meaning of monopoly power Describe and evaluate the causes and consequences of monopoly power Explain and evaluate the role of government in promoting competition Key Concepts Monopoly Monopoly power Price maker

Definitions questions normally get you 2 marks in an IGCSE Economics exam Monopoly - A situation where there is only one firm selling in a market (1mark) Monopoly Power – When a firm has more than 25% of the market share (a measurement of the sales that happen in an industry) (1mark)

How do firms achieve monopoly power? Here are just five ways; Merger and takeover Statutory monopoly – government allowed Internal expansion Branding Costs barriers

As opposed to competitive markets in monopoly there is said to be; Key characteristics are; – High barriers to entry – Non-homogenous goods – Small number or even one firm – Non-perfect information – Market power - price makers – High/supernormal profits

Evaluating the consequences of monopoly Possible bads Monopolies may choose to abuse market power Possible high prices (price makers) Possible little choice for consumers Possible poor quality (no incentive to improve because profit assured) Possible goods Possible for monopolies to invest in research and development Monopolies are often internationally competitive Possible exploitation of economies of scale In some industries it may be better for just one firm to offer all the services

They can do this various ways, some are; – Regulating the market – laws and rules e.g. no one company allowed more than x% of market share – Prevent mergers and/or takeovers that would make firms too large – Offering subsidies and/or tax incentives to help firms compete – Privatise government monopolies Because of these potential ‘bads’ governments may want to promote competition to protect consumers

To sum up Where there is just one seller, or where there is one very dominant firm. When a market is not competitive, we can say that it is not working well and is unfair to the consumer. An uncompetitive market will have a small number of firms holding all the power. When firms have this monopoly power, there could be an inefficient allocation of resources by the price mechanism (supply and demand) Governments may try to promote more competition, to break up these monopoly power.