Essential guidance on economics exam technique:
A2 Markets & Market Systems
Dynamics of Competition and Competitive Market Processes
It is wrong to assume that competition is good and monopoly power is bad. The reality is much more complex than this as we shall see when we analyse and evaluate imperfectly competitive markets where existing firms have genuine market power in setting prices for consumers.
Adam Smith on Competition
The common characteristics of markets that are considered to be “competitive” are:
The UK government has a firm commitment to competition as part of its competition policy agenda. In a detailed research document on the static and dynamic gains from increasing the contestability of UK markets publishes in 2004, the Department for Trade and Industry came out firmly in favour of a pro-competition policy regime. This short quote provides a flavour of their arguments.
The gains from greater competition
The importance of non-price competition
In competitive markets which are not perfectly competitive, frequently it is the effectiveness of non-price competition which is crucial in winning sales and protecting or enhancing market share.
Panini Peddlers, Baps, Baguettes and Bagels - Product Differentiation in the Sandwich Market
Price matters in the market but not perhaps to the degree that people expect. According to research from food analysts Winship, “UK sandwich consumers are not always driven by price and they are more concerned with perceived value for money and will pay more for a product they believe delivers that rather than shop around for cheaper offerings.”
|Author: Geoff Riley, Eton College, September 2006|
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