Micro revision notes
Anti-trust policy – abuses of a dominant market position:
-Dominant position: able to operate within the market without taking account of the reaction of its
competitors or of intermediate or final consumers
-Competition policy looks at: market share/structure, credible competitors, whether the business
has ownership and control of its own distribution network
-Anti-competitive practices: designed to limit the degree of competition in a market
-E.g. predatory pricing: prices set below average cost to eliminate or deter new entrants
-Vertical restraint e.g. exclusive dealing: e.g. retailer only selling one manufacturers product by
contract and quantity discounts: retailers receive large price discounts the more they sell of one
manufacturer’s product – incentivises them to push one manufacturer’s at the expense of another
-Collusive practices e.g. price-fixing, agreement on market sharing
-UK law: prohibits almost any attempts to fix prices e.g. agree prices with competitors, predatory
pricing and cartel all against the law and can incur huge fines and even individual prosecution
(Applying game theory in economics essays):
-Good evaluation and analysis marks, not just for use in discussing oligopolistic market structure
Theory of the firm:
-Day to day pricing decisions taken by firms: falling oil prices – if one airline decides to lower their
fares, will others follow? / Price wars between businesses battling for market share
-Oligopoly: uncertain abut each firm’s objectives (profit, revenue, sales max?) / Price leadership,
price collusion
-R&D projects: patent battles / R&D races in the pharmaceutical industry
Environmental economics: The Prisoner’s Dilemma can be applied to the tragedy of the commons –
where people acting in a selfish manner leads to the long term destruction of a resource, whereas
people acting in a common interest can help to protect and hopefully renew the resource – but it
does require a commitment to collective, cooperative behaviour
Currency intervention: speculators in FOREX market are basically playing a game with central banks
if they believe there is a possibility of intervention in the market to affect value – George Soros?
Labour market: wage negotiations / threats of industrial action and credibility of those threats
Barriers to entry and exit:
-Designed to block potential entrants from entering a market profitability
-Seek to protect the power of existing firms, maintain supernormal profits and increase producer
surplus
-Examples of entry barriers in imperfect markets:
-Economies of scale in the long run
-Vertical integration to control supply
-Brand loyalty, part of the contributing reason for first mover advantage
-Control of important technologies
-Different types of barriers:
-Structural (innocent): arising from differences in production costs
Anti-trust policy – abuses of a dominant market position:
-Dominant position: able to operate within the market without taking account of the reaction of its
competitors or of intermediate or final consumers
-Competition policy looks at: market share/structure, credible competitors, whether the business
has ownership and control of its own distribution network
-Anti-competitive practices: designed to limit the degree of competition in a market
-E.g. predatory pricing: prices set below average cost to eliminate or deter new entrants
-Vertical restraint e.g. exclusive dealing: e.g. retailer only selling one manufacturers product by
contract and quantity discounts: retailers receive large price discounts the more they sell of one
manufacturer’s product – incentivises them to push one manufacturer’s at the expense of another
-Collusive practices e.g. price-fixing, agreement on market sharing
-UK law: prohibits almost any attempts to fix prices e.g. agree prices with competitors, predatory
pricing and cartel all against the law and can incur huge fines and even individual prosecution
(Applying game theory in economics essays):
-Good evaluation and analysis marks, not just for use in discussing oligopolistic market structure
Theory of the firm:
-Day to day pricing decisions taken by firms: falling oil prices – if one airline decides to lower their
fares, will others follow? / Price wars between businesses battling for market share
-Oligopoly: uncertain abut each firm’s objectives (profit, revenue, sales max?) / Price leadership,
price collusion
-R&D projects: patent battles / R&D races in the pharmaceutical industry
Environmental economics: The Prisoner’s Dilemma can be applied to the tragedy of the commons –
where people acting in a selfish manner leads to the long term destruction of a resource, whereas
people acting in a common interest can help to protect and hopefully renew the resource – but it
does require a commitment to collective, cooperative behaviour
Currency intervention: speculators in FOREX market are basically playing a game with central banks
if they believe there is a possibility of intervention in the market to affect value – George Soros?
Labour market: wage negotiations / threats of industrial action and credibility of those threats
Barriers to entry and exit:
-Designed to block potential entrants from entering a market profitability
-Seek to protect the power of existing firms, maintain supernormal profits and increase producer
surplus
-Examples of entry barriers in imperfect markets:
-Economies of scale in the long run
-Vertical integration to control supply
-Brand loyalty, part of the contributing reason for first mover advantage
-Control of important technologies
-Different types of barriers:
-Structural (innocent): arising from differences in production costs
