Starter
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Discussion point pg13
Lesson Objectives
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All students will consider the effect of the degree
of competition on market price and output
Most students will be able to understand the
complexity of oligopoly
Some students will understand the potential losers
in these markets and role of government in them.
The spectrum of competition
Perfect Competition
Monopoly
No producer has market power
Single producer in market
Imperfect Competition
Strong competition but producers
still have an element of market power
The spectrum of competition
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Imperfect competition covers intermediate market
structures:
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Monopolistic competition – many producers and product differentiation
Oligopoly – small number of large producers
Duopoly - just 2 large producers
Oligopoly
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Few very large firms which dominate the market some
smaller firms competing
The degree of competition can measured by looking at
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Market share of dominant firms
Concentration ratio – measure of the extent to which a market is dominate by
large firms (adding market shares of largest of 3 – 5 firms) e.g. UK
Supermarkets figure 1 pg 14
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4 firm concentration ratio = 73%
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What is the 4 firm concentration ratio in handset market?
Oligopolistic strategies
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Oligopolists will avoid price competition because of the damage it
can do to the profits of all firms in the market
Price Wars – may start as predatory pricing but rival might simply
counter with own price cuts with loses for all involved
Oligopolists are aware of greater Interdependence in their market
Tacit collusion
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Firms separately coming to an understanding that it
is in their joint interest not to compete vigorously –
without any contact or agreement between them
which may be illegal (overt collusion)
Price discrimination
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Involves charging different prices to different
customers for essentially the same product or
service.
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Can you think of any examples?
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Look at example bottom of pg 16
Price discrimination
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Can only work if
 There
are clear barriers to entry
 Different customers have different demand elasticity
 Different customer groups can be easily separated
task
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Exam style qs pg 17