Market Power

Sunday, 2 May 2021 10:54 am

• Market Power - Monopoly or Oligopoly

○ Definition
○ A monopoly is a firm that is the only seller of a good or service that does not hav
close substitute.
○ An oligopoly is an industry with only a few firms who between them control the
market
○ A firm with market or monopoly power can affect the price by varying output
meaning they can restrict supply
§ A compediditive market has
□ Large number of small firms
□ Free entry and exit
□ Very little product differentiation
○ So when one or more of these conditions is not met the market is Imperfect and
is when a monopoly or oligopoly.
○ Diagram

○ Examples
§ The only monopolies we want to see are natural ones like the water corp.
would not be efficient to have competition in this market as companies wo
all have to lay pipes to every house to supply it with water
§ Market power exists if the firm can affect the market price by restricting
supply
§ Market power exists if a firm can prevent a new firm from entering the
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 § The only monopolies we want to see are natural ones like the water corp.
would not be efficient to have competition in this market as companies wo
all have to lay pipes to every house to supply it with water
§ Market power exists if the firm can affect the market price by restricting
supply
§ Market power exists if a firm can prevent a new firm from entering the
market - entry barriers to restrict competition.
○ Government intervention
§ Governments want to correct market power bc they reduce competition a
decrease total surplus
§ Competition and consumer commission act 2010-this act is administered b
the ACCC. It contains rules against anti competitive behaviours in markets
Also contains consumer protection rules know as Australian consumer law
which firms must abide by in their dealings with consumers
§ The ACCC technically prohibits anti competitive conduct like price fixing or
collusion
□ Examples of practices that are prevented by law or penalties
® Cartel
® Collusion
® Misuse of market power
® Exclusive dealing
® Predatory Pricing
® Collective boycotting
® Merger or acquisitions