Unit 2: CHAPTER 7: Market Structures and Market Failures
Anti-Trust Laws
Legislation designed to limit the formation of monopolies or combinations of firms that act to restrict competition
Trust
A combination of firms; in the late 1800s, trusts worked to eliminate competition and control prices, but were later banned under antitrust laws
Public Franchise
A contract issued by a government entity that gives a firm the sole right to provide a good or service in a certain area, such as a national park
Market Share
A firm's proportion of total sales in a market
License
A legal permit to operate a business or enter a market
Natural Monopoly
A market controlled by a single firm for no reasons of efficiency; in a natural monopoly, one firm can provide a good or service at a lower cost than two or more competing firms
Oligopoly
A market structure in which a few firms dominate the market and produce similar or identical goods
Monopoly
A market structure in which a single producer supplies a unique product that has no close substitutes
Perfect Competition
A market structure in which many producers supply an identical product and no single producer can influence its price; in such a market, prices are set by supply and demand
Monopolistic Competition
A market structure in which many producers supply similar but varied products
Price Setter
A producer that can set a price for a product, rather than accepting the market price
Price Taker
A producer that has no influence over the price of a product; price takers must accept the market price
Commodity
A product that is exactly the same no matter who produces it
Brand
A trade name
Collusion
An arrangement in which producers cooperate on production levels and pricing; collusion is illegal in the United States
Price War
An intense competition among rival firms in an oligopoly in which they successively lower prices to increase sales and win a larger share of the market
Barrier to Entry
An obstacle that can restrict a producer's access to a market and limit competition
Cartel
An organization of producers established to set production levels and prices for a product; cartels are illegal in the United States but do operate in global markets
Market Power
The ability of producers to influence prices
Price Leadership
The ability of the dominant firm in an oligopoly to set price levels that other firms then follow
Product Differentiation
The attempt by firms to distinguish their goods and services from those of other firms
Economies of Scale
The greater efficiency and cost savings that result from large-scale or mass production
Start-Up Costs
The initial expense of launching a business
Market Structure
The organization of a market, based mainly on the degree of competition; there are four basic market structures: perfect competition, monopolistic competition, oligopoly, and monoply
Concentration Ratio
The proportion of a market controlled by a fixed number of companies; for example, a four-firm concentration ratio shows how much of a market is controlled by the four largest firms in that market
Brand Loyalty
The tendency to favor one company over all others in a market
Non-Price Competition
The use of product differentiation and advertising to attract customers